It seems clear that there is an ongoing relationship between Bolivia and the distributor and that certainly there was a bill, purchase order and/or invoice in order to support this sale. Second condition is the seller’s price to the buyer is fixed or determinable. We can see clearly that the case provides clear evidence in this aspect. Third condition is where the collection is reasonably assured. It was showing the ongoing relationship between Bolivia and the distributor, it appears evident that this aspect was probably covered as well.
Lastly is the delivery has occurred or services have been rendered. However, this is the key point of conflict in the Viola’s case. There are basically two different moments of revenue recognition according to the FOB condition. For the condition of FOB shipping, the company should recognize revenue at the moment or In the period In which product leaves Oval slapping coco at the warehouse since In that precise moment both ownership and responsibility over the goods is transferred from Bolivia to the client.
On the other the period in which product is delivered to the distributor’s facility since in that precise moment both ownership and responsibility over the goods is transferred from Bolivia to the client. Viola’s most recent filing with U. S. Securities Exchange Commission stated that they recognized product sales revenue when the product was shipped to the customer provided that the firm had not retained any significant skis of ownership or future obligations with respect to the product shipped. Revenue from product sale was recognized net of reserves for estimated product returns, recalls, rebates and greenbacks.
At the same time, chief financial officer of Bolivia concludes that the title and risk is passed to customer on FOB shipping basis that suggests that title passes in Manitoba when shipment leaves the shipping dock for distributor. However, this was not the case as the distributor previously made it clear to Viola’s vice president of finance that the agreement suggests a title and sis change on FOB destination basis where the title and risk passes to distributor only when the product is delivered at distributor’s facility which is the North Carolina.
Given the facts and information presented in the case, Bolivia should have recognize revenue following the FOB destination structure. However, Bolivia recognized revenue as if it was operating under FOB shipping, probably in an attempt to boast revenue for the period. SQ: How does the accident affect the stated revenues under the different FOB contract structures? Explain your reasoning.
Based on the information that has hon. in the case, Bolivia should have recognized revenue following the FOB Destination structure in which in the case, it has mentioned that there is a correction on when the title of the product passed to the distributor. The Viola’s agreement with the distributor stated that the title to, and risk of loss with respect to, the product would not be passed to the distributor until the product was delivered to the distributor’s facilities, which means the correction on the agreement follows the F.
O. B. Destination. The term of F. O. B. Refers to the ‘Free On Board’ or ‘Freight On earners from shipper to buyer. The “FOB shipping point” indicates that the buyer will have the full responsibility for the goods when the goods leave the seller’s premises, in contrast, “FOB destination” indicates that the seller remains responsible for the goods until the buyer takes possession of the goods. It can also use to identify who is responsible for loading and unloading costs. In addition, the “F. O. B.
Destination” delivery term means that when delivery occurs and revenue may only be recognized when the product reaches the buyer’s facility. In the case of Bolivia, the rack accident could not have impacted the company’s third quarter financial results because the truck left for North Carolina on September 30, which it is too late to possibly reach North Carolina prior to the end of the quarter. However, Bolivia recognized revenues as if it was operating under FOB shipping, which is probably in an attempt to boast sales revenue for the period of the company.
Under GAP, revenue may be recognized on the sale of a product when a transaction process has occurred whereas this refers to the delivery of the product by the seller to the buyer has occurred. In the other hand, even if the terms and agreement of Bolivia was being a “F. O. B. Shipping”, meaning that Bolivia could have recognized the revenue from the sale before it has been earned and realized, which at the moment the product left Viola’s facility, the truck accident still could not have impacted Viola’s third quarter financial results.
The truck accident would have had no impact on Viola’s third quarter financial results because the title to the product and the risk associated with the accident would have passed to the Distributor as soon as the truck left Viola’s plant. Under those circumstances, Bolivia could have recognized revenue resulting from the shipment regardless of the accident. In addition, only big distributors would be willing to run the risk associated with FOB shipping, smaller distributors would likely prefer FOB destination, with the reason of high cost involved.
SQ: Are you concerned about the company’s treatment of analysts who cover the stock? Would you want to be the analyst covering this company? Yes, I would be concerned about the company’s treatment of analysts who cover the stock. To be honest, I would not want to be the analyst covering this company as it loud spoil my reputation and thus damage, perhaps, the success of my future and employment. The reason to this is because Bolivia seems to be a dishonest company, with aggressive accounting practices, bad company culture, and bad management control.
Bolivia Corporation unclear information about the truck accident, which Maria had found out was incorrect after further investigation. This shows that they are dishonest with their disclosures. By recording the revenue from the sale of drugs in the truck accident, which was artificially inflated, Bolivia Corporation also did not imply with the U. S. GAP conditions. A report in April 2002 that contained a Sell recommendation, where Triple had said that Bolivia didn’t have high quality revenue and earnings performance over the last 18 months, which was unclear.
Bolivia then rejected this publicly, which got Triple into trouble and resulted in an investigation and then Triple losing his Job. As an analyst, I would worry that Bolivia my reputation as an analyst even if I were telling the truth about the information about my analyst about Bolivia Corporation. Other negatives can be seen whereby Brian Crumbier told analysts wrong information about Viola’s contract. This shows that the company has bad management, which doesn’t give such a good look to Bolivia.
It looks as if the important people in the company don’t have very good communication with one another. Another bad thing about Bolivia Corporation is that the Canadian Imperial Bank of Commerce had announced that it was cutting its stock rating on Bolivia because there was continuous production delays and operational uncertainties within the company. This is a bad thing to say about a company which would lead to an even negative opinion of them.
