F1 - 1.8 Revenue Recognition

Question 1

On what basis Royalty Revenue is recognized?

Answer 1

Royalty revenue is recognized on the accrual basis when earned.

Question 2

How ‘Uncollectible Rent Written Off’ during the period are treated under Accrual Basis?

Answer 2

Rental revenue arises from the use of entity’s assets by others and the revenue is recognized when the assets are used (i.e., as the time passes). Uncollectible rents are added to/considered in Revenue because, under accrual accounting, revenue is recognized when earned, even if not collected. Even though later it is written off, it must first be included in the accrual-based revenue calculation.

Question 3

When does the entity record a contract liability if the contract is cancellable and include advance payment terms?

Answer 3

As the contract is cancellable, the entity will wait till the actual receipt of advance payment. Upon receipt, on the date of the advance payment, the entity will record the contract liability. The date of actual receipt of advance payment is to be considered and not the date mentioned in the agreement for advance payment.