Sample Essay

There are several differences in revenue recognition policies of Hewlett Packard and Advanced Micro Devices which are described below.

  1. There is no future obligation for Hewlett Packard to ensure resale of products whereas Advanced Micro Devices has to ensure resale of products in order to recognize revenue on these products.
  2. There are several sales transactions of varying nature in Advanced Micro Devices which hinder the appropriate and reasonable estimation of returns due to deficiency in estimation of specific transactions.
  3. The partners of Hewlett Packard such as distributors and retailers have economic substance other than that provided by the company unlike Advanced Micro Devices whose distributors may not have this economic substance.
  4. The revenue on sales which have no contingency is recognized in Advanced Micro Devices on shipment of products whereas Hewlett Packard recognizes these revenues only to a limited extent.
  5. The estimation of future returns may vary in the two companies as the estimation on future returns are based on previous and experiences which may be different.

It is concluded from the review of SFAS 48 and the policies of revenue recognition followed by Hewlett Packard and Advanced Micro Devices that it is best to recognize revenues following the criteria set out but the FASB in SFAS 48 to ensure reasonable estimation and appropriate disclosure.

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