Since the company has entered in a future contract for the next 18 months and its products are considered to be pre-sold, any change in the market price of the gold can create gain or loss. Therefore, this future contract can be financial asset if they involve gain and financial liability if they involve loss. The company managed its sales throw hedging its transaction between willing parties and by quoted the market price.
According to the case, the company recognized its revenue when it is shipped from the mine and the title has passed. Other suggested method could be:
* Installment method: under this method income is recognize when the cash are colleted rather than when it is delivered. Applying this method to the company will result in deferred sales and cost of sales therefore since the forward contract sales are reflected in revenue this method could be helpful.
* Cost Recovery Method: Under this method sale recognizes no profit until cash payment by buyer exceeds the company's cost of mining the gold. This method would be helpful if the company want to have reasonably estimating collectiblity in its selling of the gold.
* Deposit Method: under this method, the company will not transfer the gold until the buyers pay for it. The company under this method could reduce its risk of not collecting cash from its customers.
According to the case, the company deferred $2,197,000 cost of property in Northern Labrador, in our opinion we thought this cost should not be deferred and should depreciated of the life of the property by recognizing a depreciation expense every year. Such high cost property cannot be deferred even if the project in not brought yet.
Since the restoration cost cannot be determine as well...