Chapter 6 Revenue Recognition

Question 1

What are the steps for revenue recognition

Answer 1

Step 1 is there a contract
step 2 are there seperate performance obligations
step 3 is there a transaction price
step 4 allocate transaction price to performance obligation
step 5 when to recognize revenue

Question 2

how to record revenue if there is a return

Answer 2

if the quantity of returns ARE predictable, then recognize revenue for amount not going to be returned

if not predictable, defer all revenue until period of return is over

Question 3

what are the steps of revenue recognition in ASPE

Answer 3

R: Risks and rewards have been transferred
C: Collection is reasonably assured
M: Measure all costs and revenue
P: Performance of the service/delivery

Question 4

What are the 2 different types of warranties and how to recognize revenue

Answer 4

1. ASSURANCE TYPE
   comes with the product therefore not a seperate performance obligation and when recognizing the revenye need to record warranty expense/provision
2. SERVICE TYPE
   does not come with the product and therefore a seperate performance obligation

Define seperate: can be purchased and used on its own

need to allocate % of sales to warranty

Question 5

what are customer loyalty points/how to allocate

Answer 5

are considered separate performance obligations

need to find rate of redemption

Question 6

What is the criteria for bill and hold arrangements

Answer 6

Buyer is billed but no delivery until later date

Buyer acknowledges deferred delivery provisions
buyers inventory is separately identifiable
inventory ready for delivery
seller can not use the product or sell it someone else and replace

IF ALL MET, CAN RECORD REVENUE before performance met

Question 7

What is a consignment agreement and how to recognize the revenue

Answer 7

Seller of the product ships it to someone else (acting as a sales agent) and the seller retains control of the goods

NO REVENUE at time of delivery, can only recognize when it is actually sold to customer

Question 8

Explain the difference between reporting revenue “gross vs net”

Explain also PRINCIPAL vs AGENT

Answer 8

Principal would report on a gross basis (just the revenue)

Whereas an AGENT would report on a net basis (amount they keep)

To assess indicators of agent status (to net)
Company bears no inventory risk
company cannot change price
company earned commision
company bears no credit risk

Question 9

What are types of non-monetary transactions and how to record

Answer 9

Non monetary transactions are when companies exchange assets,goods,services without money

CAN VALUE AT
FV asset given up
Book value given up

Question 10

HOW TO RECORD BARTER TRANSACTIONS (Dissimilar and Similar)

Answer 10

Exchange Similar
-record at carrying value given up

Exchange Dissimilar
-record at FV recieved

Question 11

ASPE NON-MONETARY TRANSACTION what is the criteria

Answer 11

All transactions with COMMERICAL SUBSTANCE use FV given up/recieved