F1M4 Flashcards
Incremental Costs
costs that would not have been incurred if the contract had not been obtained
incremental costs are recognized as
an asset
costs that are capitalized in a contract
DM, DL, MOH
Costs to be expensed in a contract
selling and g&a costs
principle
i.e. Delta Airlines
revenue recognized is equal to gross
agent
i.e. Hotwire.com
revenue recognized as net
indicators of principle
- Primarily responsible for fulfilling contract
- entity have inventory risk
- Entity have discretion in establishing prices for other party’s goods/services
Repurchase Agreement
entity sells an asset and either promises to or has the option to buy it back
forward
Entity obligation to buy back asset
call
entity right to repurchase asset
forward/call repurchasing option
less than selling price: lease
More than selling price: financing arrangement
Put
an entity’s obligation to repurchase an asset at the customer’s request
Put (less than selling price) repurchasing option
- lease (significant economic impact)
2. sale with right of return (not significant economic impact)
Put option (more than selling price) repurchasing option
- Financing arrangment (repurchase is MORE than market value)
- sale with right of return (repurchase is LESS than market value)
Bill and hold arrangment
contracts in which the entity bills a customer for a product that has not yet been delivered to customer
when is revenue recognized in a bill and hold
whenever the customer obtains controls of product
Customer has control of product in bill and hold when
- substantive reason for arrangement
- Product has been separately identified as belonging to customer
- product is ready for transfer to customer
- entity cannot use the product or direct it to another customer
Consighnment
dealer has not obtained control; revenue recognized when dealer sells product
Indicators of Consignment
- entity controls product until specified event
- dealer does not have unconditional obligation to pay
- entity can require return
If a warranty can be purchased separately
it is a distinct performance obligation
refund liability
entity should recognize a refund liability if it it anticipates to receive back a portion of consideration
Percentage of completion method requirements
- can estimate profit
2. provide a reliable measure towards completion
Type of account ‘Construction in Progress’
Inventory
Type of account ‘Progress Billing’
contra-Inventory
Type of account ‘Billings in excess of cost’
Current liability
How to compute gross profit in % of completion
contract price - estimated TOTAL contract price
How to compute % of completion
costs incurred to date/total estimated cost of contract
How to compute GP to date
total sales price * percent completion
Estimated loss in a contract
Recognized immediately
Under completed contract method, profit is recognized when
contract is completed
How to calculate revenue in completion of contract
contract price- total costs
losses in contracts
Recognized in full the year they are discovered
