Under ASPE 3400 gross vs net, principal results in gross revenue and expenses; agent results in net.

Under ASPE 3400 gross vs net, principal results in gross revenue and expenses; agent results in net.

• A. Principal: Net; Agent: Gross
• B. Principal: Revenue only; Agent: Expenses only
• C. Principal: only expenses; Agent: only revenue
• D. Principal: Gross (total revenue and expenses); Agent: Net (revenue net expenses)

Answer: (D)

The main idea is how ASPE 3400 treats the amounts each party reports depending on whether they act as a principal or as an agent. A principal is the party that bears the risks and controls the goods or services, so it must recognize revenue on a gross basis and also record the related gross expenses. In contrast, an agent arranges the transaction but does not control the goods or bear the primary risk, so it recognizes only the net amount it earns (usually a commission) as revenue, without recording the gross sale price or the gross cost of the goods. This is why the correct presentation is that the principal reports gross revenue and gross expenses, while the agent reports net revenue. The other options conflict with who bears the risks and who controls the sale, so they don’t fit.

The main idea is how ASPE 3400 treats the amounts each party reports depending on whether they act as a principal or as an agent. A principal is the party that bears the risks and controls the goods or services, so it must recognize revenue on a gross basis and also record the related gross expenses. In contrast, an agent arranges the transaction but does not control the goods or bear the primary risk, so it recognizes only the net amount it earns (usually a commission) as revenue, without recording the gross sale price or the gross cost of the goods. This is why the correct presentation is that the principal reports gross revenue and gross expenses, while the agent reports net revenue. The other options conflict with who bears the risks and who controls the sale, so they don’t fit.