Growcorp Ltd., a corporate farming processing venture, was established on January 1, 2013. During its first crop year, March to October 2013, the company raised crops under contract for a large retail food chain and froze and packaged those crops under the retail firm’s private name brand. The contract called for the release of the inventory from Growcorp Ltd. to the retailer as requested by the retailer during 2014. The entire crop was warehoused by Growcorp Ltd. upon packaging during September and October 2013 and it was expected that the first shipment would be made during January 2014.
On January 5, 2014 the accounts of Growcorp Ltd. for 2013 were being finalized and a debate was taking place between the treasurer and controller of the company as to how to account for the crop revenue and related costs for the 2013 crop year. The controller was arguing for recognition of the revenue in the 2013 fiscal year while the treasurer felt that the revenue should be included in the 2014 fiscal year.
Just as the argument was reaching a crescendo, a warehouse person burst into the room where it was taking place and announced that the warehouse and its entire contents had been destroyed by fire.
The controller looked at the treasurer, slumped into a chair, and said “Thank goodness it was insured” and then, after a pause, added, “I guess my arguments just went up in smoke. It looks like you were right – a sale is not certain until it happens. We sure can’t call it revenue now.”
