2-Revenue Recognition

Question 1

5 steps to revenue recognition

Answer 1

1. Identify contracts with customers
2. Identify separate performance obligations
3. Determine total consideration
4. Allocate consideration to obligations
5. Recognize revenue either when entity has satisfied or is satisfying obligations

Question 2

3 criteria for control over goods or services

Answer 2

1. Ability to direct use of goods or services
2. Can prevent others from benefiting from them
3. Can obtain benefits in the form of cash flows

Question 3

2 methods for measuring progress towards completion

Answer 3

Output method and input method

Question 4

Steps to calculating profit for percentage to completion

Answer 4

1. Total contract - estimated total cost = estimated total profit
2. Costs to date/estimated total cost = % of completion
3. Estimated total profit x % of completion = GP to date
4. GP to date - GP to date at end of last period = GP in current period
   GP added to CIP account

Question 5

Billings and CIP are better on the BS to report either:

Answer 5

Current asset (costs + profit in excess of Billings)
Current liability (billings in excess of costs + profit)

Question 6

Completed contract method

Answer 6

Report no profit until job is finished
Accumulate costs in CIP account
Billings accumulated in Billings account