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Product cover image for EOS Imaging: Revenue Recognition

EOS Imaging: Revenue Recognition

Kun Huo, Matthew Sooy, Zoe Zhou

Product #:W24571_P
Supplier:Ivey
Discipline:Accounting
Setting:Canada, 2019
Details:Case (PDF) • 14 pages • 2021-08-27

Subjects:

Financial statementsFinance and investingAccounting

Industries:

Healthcare sector

Geography:

North AmericaCanada
Your Price:$9.71

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Jane Zhou, an equity analyst at a large asset management firm, was preparing a report on EOS Imaging (EOS), a French medical device company that her firm had invested in. EOS’s drastic fall in First Quarter (Q1) 2019 revenue caught Zhou’s attention, as the company had maintained a continuous growth record up until 2018. In Q1 2019, EOS only achieved 1 per cent of its Q1 2019 equipment sales revenue. Also, during Q1, EOS made a significant change to its general sales agreement, leading to a corresponding change in revenue recognition timing. Zhou wondered if the revenue slowdown could be mainly attributed to the accounting method change rather than to weakening demand. It was crucial for Zhou to understand the impact of this change and to decide whether she should recommend her portfolio manager to liquidate the firm’s position in EOS or not.

Learning Objectives

This case can be used in a financial accounting course at the undergraduate or graduate level. Students should have a basic understanding of financial statements and accounting choices. By working through the case and assignment question, students will have the opportunity to do the following:
  • Identify elements involved in the five-step revenue recognition model.
  • Identify the appropriate accounting practice that reflects the economic reality of the business.
  • Recognize the difference between accounting events and commercial events, discussing differences between economic profit, accounting profit, forecasted profit, and value.
  • Differentiate between accounting method changes that arise from business model innovations and those that do not.
  • Analyze the impact of different revenue recognition methods on financial statements.
  • Perform simple adjustments to revenue to account for the difference in timing between old and new revenue recognition practices.
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Case Study: EOS Imaging: Revenue Recognition | Ivey Publishing