'Accounting and Auditing: Crazy computers\r'

'FASB (Financial noteing system Standards Board) plays the part of determining Generally Accepted account Principles to break proper accounting standards ar followed. According to FASB, taxation is recognised in one case it is earned.Commission in disquieted Computers case is know immediately since disgusted Computers collects the specie on behalf of trine ships comp all insurance and hencece pays it. Commission however should non be added to gross revenue events because when balancing the equation, Sales is adjoin to opening stock plus purchases slight closing stock.This means that by adding counselling to sales the equation may non balance and it leave behind be exaggerated. The equip revenue consists of income and it is therefore utilize in the final statements of accounts to calculate the profit of the business.Commission standard from TPI can therefore be used when coming up with profits for the year. In case three Party insurance agrees to re insure, r evenue to be obtained from third Party Insurance (TPI) ordain provided be recognized after Third Party Insurance pays up the standard to unfree Insurance Company (CIC).Commission revenue can only be recognized immediately if creep Computers go bring out automatically be deducted from the $110 that the company gives to Third Party Insurance so that it does not have to wait for TPI to pay. This would mean that loopy Computers would have $165 at the obliterate of the sale then give $25 to TPI.However, it may not show whether the calculators on their own were able to live on themselves without the kick upstairs from the charges earned. When maladjusted Computers introduce CIC, they will whitewash get the commission but it will be offset when the amount standard from TPI is added.Even as Crazy Computers recognizes revenue from sale of third party insurance on behalf of TPI, it should be careful when it comes to receiving the money bottom for re-insurance through CIC. Th e best method to account for the funds to be peaceful from the Captive Insurance is to do them separately from Crazy Computers.This is because Crazy Computers and CIC are deuce diametrical kinds of businesses. FASB advices that in order to check the come out of a business it is good to compute its profitability which is done by subtracting the expenses from sales make by the business.This will arrest that when it comes to paying claims, revenue received from Crazy Computers should not be used for CIC obligations. It will also understand that the money collected from CIC is not to be used in the computer business unless Crazy Computers borrows from CIC.If Crazy Computers was to account for CIC revenue together with the computer revenue, calculating profits would get alter since the revenue received is not made from sales only. In other words, treating the two businesses as separate entities will ensure the profitability of the two can be determined.Crazy Computers idea to crea te a alone owned subsidiary would be a good idea if the Third Party Insurer agrees to re-insure with them. Based on the exploit illustrated in the case study, currently Crazy computers pay $110 for insurance much(prenominal) that TPI takes responsibility for any obligations from customers.Because CC gets commission for every sale made then from the $200 received it is left with $80 after paying the sales persons $10. With the fundament of CIC and if TPI agrees to re insure with CIC, CC will get $ 85 back out of the $110 paid to TPI.This means that cash received goes up from $80 to $165. CIC would therefore be profitable. However, in case of any third party obligations CIC will be solely responsible. This is why it is extremely fundamental for Crazy Computers to ensure that CICs income does not ripple with computer income so as to ensure each department can sustain its own expenses.Word count (635).ReferenceFASB. (2008). Financial Accounting Standards and Revenue Recognition.  Â Â Â Â Â Â Â Â Â Â  from http/www.fasb.org.\r\n'