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Caltron Computers Inc Case Summary

738 Words3 Pages

Caltron Computers, Inc. is a publicly held company with a total market capitalization in excess of $450 million. Caltron main revenue consists of manufacturing minicomputer systems that are designed to achieve the power of a mainframe at a fraction of the cost of their competitors prices. The corporation uses revenue recognition to report their income and expenses. However an issue was detected during an financial audit by Peale, Gower & Quill. Revenue is a very crucial aspect to users of financial statements in assessing a corporations true financial performance and financial situation. However to determine the corporations overall financial performance, accounts must understand that revenue recognition requirements under IFRSs are very …show more content…

uses revenue recognition to report their revenue regarding computer shipments. By using revenue recognition, it allows for the improvement of weaknesses within their reporting, provides a very robust framework for addressing any issues noticed as well as provide useful information to users of financial statements through improved disclosure requirements. Finally Caltron inc. main goal by using revenue recognition is to set out to prepare financial statements by reducing the number of requirements to which the corporation must refer to in order to improve comparability of revenue recognition practices across industries, capital markets and within their …show more content…

While viewing the statements and having an understanding of the purpose of using revenue recognition, it is clear that the corporation isn't using it in their favor. The revenue recognition policy for Carlton inc. is very flawed due to several reasons. The first reasons is that it recognizes their revenues when goods are sold on approval basis as was done in this example regarding the two of the transactions. For example, the first transaction involved the recognition of $400,000 of revenue on two systems shipped to Elegant Housing, Inc. on a trial basis for six months. Elegant paid Caltron $20,000 at the time of shipment, November 15, 20X1, which would be applied to the purchase price if Elegant accepts the systems or forfeited if Elegant returns systems. However Caltron will only report the transactions when they are accepted. It throws off their reporting and does not provide a full picture of their current financial picture because of using an approval

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