In examining the annual report for Amazon inc., there are a number of sections that are of use to any interested party. One of the sections includes the determination and recognition of revenue. For the determination of revenue, a number of figures and assumptions are put into consideration so as to effectively determine the correct amount in terms of revenues. For the year 2015, the management made a number of assumptions in relation to revenue.
Among the assumptions include revenue arrangements with multiple deliverables. In such scenario where Amazon does not specific vendor objectives, the revenues are estimated based on the prices which are relative to other similar products in the industry.
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In addition to the prices of other similar products, the revenues can also be estimated based on the customer’s demand. Here the assumption is that the more the demand the more the revenues. The basic principle is that more customers will increase the revenues.
Another assumption made is in terms of determining the return allowances. The value for the amount to be included as return allowances is solely based on historical data. The data from previous financial years are used as a basis for determining the current year’s value in terms of return allowances. The estimated amount is based on historical data as well as the current year’s economic condition.
In order to encourage its customers, Amazon offers a number of incentives to them. Such incentives are aimed at increasing the sales of Amazon’s products. In my opinion, there is no manipulation of sales figures that have occurred in such a scenario. Using current discount offers instead of inducement offers serves as a strategy to make more customers buy goods from Amazon. Inducement discounts for the future based on current purchases might not be the viable way to go as uncertainties may occur at any time.
There is a slight difference between the statutory tax rate and the effective tax rate. The difference is 5.7% in favour of the statutory rate. The difference between the two tax rate is mainly due to the adjustments made to the statutory tax rate. Among the values used in the adjustment of the statutory tax rate to effective tax rate include state income taxes, taxes from foreign operations, domestic tax credits, charitable organizations, deductions from domestic productions as well as gains resulting from the acquisitions of joint ventures.
For the determination of future tax payable on repatriated amounts the Starbucks management has to make a number of assumptions. One assumption is in regards to the exchange rate. The assumptions made on the exchange rate is based on the current and historic trend in exchange rates between the dollar and the currency of the country in question. Another assumption is that there will be a continued flow of income from the host country in the foreseeable future.
Uncertain tax benefits refer to the benefits that the firms receive as a result of not declaring certain tax amounts. Assumptions made that affect the increase or decrease of this amount include the historical information used in declaring tax amounts. The assumption is that Starbucks will use the same method.
The costs involved in Starbucks’s decision to pay the previous year’s tax due is a reduction in profits. The tax paid will affect the profits gained in the current financial year. Another cost involves low dividends paid to the shareholders. As profits decline, shareholders stand to receive less in terms of dividends. In the future, there will be strict guidelines set by the regulatory authorities to ensure that Starbucks does not default in paying any taxes. As for the benefits, it shows commitment by the company to comply with the relevant statutory laws. On top of that, the company’s reputation is maintained. The negativity of not paying is overshadowed by the company’s decision to pay in the coming financial year. Lastly, the good reputation maintained will attract more customers to Starbucks’s products.
