It is appropriate to recognize the revenue in this transaction. The reasons for it are mentioned below.Under FOB shipping point, the revenues are recognized when the shipments leave the sellers shipping dock and not when the buyers have received the goods. Hence, as soon as the goods leaving the shipping points, firm can recognize the revenue. In this scenario, the shipment has left the firm premises and it can be recognized in revenue terms. This aspect is only possible because of FOB shipping point aspect in the contract. If it had been FOB onboard, then the firm cannot recognize the revenue.
FM has used Transpo as the logistics firm. The firm Transpo even though is a 100% subsidiary, its operations are completely independent of the parent firm which is FM. This can be affirmed by the fact that Transpo derives only 2% of the revenue from FM and it is not logistics firm only for FM. Confusion of goods is still with the buyer doesn’t arise as these firms operate independently. After Tranpo acquires the goods it can be assumed that the firm has shipped the goods and it has left its premises.
In addition, this risk has been transferred to the buyer since Communco has insured the goods in transit. This is an important aspect of the recognizing the revenue. The transfer of risk is important and the buyer has taken up the risk in this scenario. The risk aspect of the revenue has been satisfied in this scenario. In the FOB shipping point, this is an important aspect. Since the firm does not retain the risk once the goods are shipped and hence the buyer needs to take the risk.
Furthermore, the selling price and amount of cable have been specified and hence the seller can determine exactly the revenue and the cost of earnings. This aspect is important while recognizing the revenue which is determination of amount of revenue and the cost of earnings (Yeaton, 2015).
All the main conditions of the revenue recognition have been fulfilled in this scenario. Hence it is appropriate for the firm to recognize the revenue in this scenario.