Web Co Operates a Website Selling Used Books $\bullet$ Web Co Will Transport the Books Sold to the End

question 7

Multiple Choice

Web Co operates a website selling used books. Web Co enters into a contract with Bookstore, a used bookshop, to sell books sold by Bookstore. The terms and conditions of the contract include:
$\bullet$ Web Co will transport the books sold to the end customer.
$\bullet$ Web Co does not take possession of the books sold to the customers; however, the customer returns the books to Web Co if they are dissatisfied.
$\bullet$ Web Co has the right to return books to Bookstore without penalty if they are returned by the customer.
$\bullet$ Web Co will invoice the customer for the sale.
$\bullet$ Web Co earns a fixed margin on the books sold, and has no flexibility in establishing the sales price of the book.
$\bullet$ Bookstore retains credit risk for sales to the customer.
Web Co should recognise revenue on the transfer of the books to the customer:

• A) on a gross basis
• B) on a net basis
• C) on a gross basis as Bookstore retains all credit risk
• D) on a net basis as Web Co does not set the sales price

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Definitions:

Variable Costs

Costs that change in proportion to the level of production or business activity.

Fixed Costs

Expenses that do not vary with the volume of output, including costs like rent, salaries, and insurance premiums.

Net Income

The total earnings of a company after subtracting all expenses, taxes, and costs, indicating its profitability.

Variable Costs

Costs that vary directly with the level of production or volume of output.