F1M3

Question 1

Revenue recognition occurs when

Answer 1

an entity satisfies a performance obligation by transferring either a good or service to the customer

Question 2

Five Step Approach to Recognizing Revenue

Answer 2

ISTAR
Identify the contract
Identify Separate Performance Obligations
Determine Transaction Price
Allocate Transaction price to the separate performance obligations
Recognize revenue when or as the entity satisfies each performance obligation

Question 3

Criteria for revenue recognition

Answer 3

1. all parties have approved the contract and have committed to perform the obligation
2. the rights of each party regarding contracted good/services have been identified
3. Payment terms can be identified
4. Contract has commercial substance
5. It is probable that the entity will collect substantially all consideration due

Question 4

JE for when the contract is initiated

Answer 4

None

Question 5

Performance obligation

Answer 5

promise to transfer a good or service to a customer. If distinct, separate. If not, combined

Question 6

Distinct good/service

Answer 6

1. promise is separately identifiable

2. customer can benefit from the good/service independently or when combined

Question 7

NOT a separately identifiable performance obligation

Answer 7

1. good/services are highly interrelated/interdependent
2. Entity provides significant service of integrating the good/service with other goods/service (example is build and design)

Question 8

Transaction Price

Answer 8

amount of consideration that an entity can expect to be entitled to receive

Question 9

If payment is anticipated to be less than one year, discounting the price is

Answer 9

unnecessary

Question 10

non cash consideration

Answer 10

measured at fair value at contract inception

Question 11

revenue is recognized over time if

Answer 11

• the entities performance created or enchances an asset that the customer controls
• the customer receives and consumes the benefits of the entity’s performance as it performs
• entity’s perofmrance does not create an asset with alternative use

Question 12

output method

Answer 12

revenue is recognized based on the value to the customer of the goods or service transferred to date relative to the remaining goods/services (units produced/time elapsed/milestones achieved)

Question 13

input methods

Answer 13

revenue is recognized based on the entity’s efforts or inputs to the satisfaction of the performance obligation relative to total expected inputs (i.e. labor hours expensed)

Question 14

Contract is satisfied at one point in time if

Answer 14

1. Entity has right to payment
2. Customer has legal title over asset
3. Entity has transferred physical possesscion of asset
4. customer has accepted asset