EOS IMAGING: REVENUE RECOGNITION
CASE STUDY SOLUTION
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SYNOPSIS
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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 previous year equipment sales revenue. Also,
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during Q1 2019, 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
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to the accounting method change rather than to weakening demand. It was crucial for Zhou to understand
the impact of this change, before she could decide whether or not to recommend that her portfolio manager
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So
The Case Solution Starts From page 3
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ASSIGNMENT QUESTIONS
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1. Which of EOS’s revenue recognition practices (i.e., 2018 or 2019) better reflects economic reality?
Which method is more congruent with the IFRS, and which is more congruent with industry
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practice/competitors?
2. Which factor has a greater impact on Q1 2019 equipment sales—the change in revenue recognition
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methods, or the declining order numbers?
3. Using Zhou’s estimate of the order and installation schedule, calculate the 2017–2019 equipment sales
revenue (a) under the old practice, (b) under the new practice, and (c) under the current practice. Is the
change in revenue permanent or temporary?
4. Should Zhou recommend her supervisor to liquidate her stake in EOS?
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ANALYSIS
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1. Which of EOS’s revenue recognition practices (i.e., 2018 or 2019) better reflects economic
reality? Which method is more congruent with the IFRS, and which is more congruent with
industry practice/competitors?
So
Which of EOS’s revenue recognition practices better reflects economic reality?
This question is meant to draw awareness to the fact that many reasonable perspectives and opinions exist
on both the economic reality of the transactions and the method that best reflects that reality. More
practically, it also serves as a crutch for students who have not deeply read the case. The instructor can
spend a few minutes eliciting different perspectives, taking care to separate opinions on the appropriate
recognition from the appropriate reality (fact set) by visually sorting student comments into one of two
The Case Solution Starts From page 3
CASE STUDY SOLUTION
e
pl
m
SYNOPSIS
Sa
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 previous year equipment sales revenue. Also,
n
during Q1 2019, 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
tio
to the accounting method change rather than to weakening demand. It was crucial for Zhou to understand
the impact of this change, before she could decide whether or not to recommend that her portfolio manager
lu
So
The Case Solution Starts From page 3
, e
ASSIGNMENT QUESTIONS
pl
1. Which of EOS’s revenue recognition practices (i.e., 2018 or 2019) better reflects economic reality?
Which method is more congruent with the IFRS, and which is more congruent with industry
m
practice/competitors?
2. Which factor has a greater impact on Q1 2019 equipment sales—the change in revenue recognition
Sa
methods, or the declining order numbers?
3. Using Zhou’s estimate of the order and installation schedule, calculate the 2017–2019 equipment sales
revenue (a) under the old practice, (b) under the new practice, and (c) under the current practice. Is the
change in revenue permanent or temporary?
4. Should Zhou recommend her supervisor to liquidate her stake in EOS?
n
tio
ANALYSIS
lu
1. Which of EOS’s revenue recognition practices (i.e., 2018 or 2019) better reflects economic
reality? Which method is more congruent with the IFRS, and which is more congruent with
industry practice/competitors?
So
Which of EOS’s revenue recognition practices better reflects economic reality?
This question is meant to draw awareness to the fact that many reasonable perspectives and opinions exist
on both the economic reality of the transactions and the method that best reflects that reality. More
practically, it also serves as a crutch for students who have not deeply read the case. The instructor can
spend a few minutes eliciting different perspectives, taking care to separate opinions on the appropriate
recognition from the appropriate reality (fact set) by visually sorting student comments into one of two
The Case Solution Starts From page 3
