Other Revenue Situations

Question 1

What is the cost recovery method of revenue recognition?

Answer 1

More conservative than the installment method. No gross profit is recognized until the cost of the item sold is fully recovered

Question 2

What is the justification for using the cost recovery basis of revenue recognition?

Answer 2

Same as Installment sales - uncertainty about cash collection

Question 3

In regards to agriculture products, what 3 conditions must be met to recognize revenue at completion of product?

Answer 3

1. ) Relatively stable market for product
2. ) Any related marketing costs are nominal
3. ) The units produced must be homogeneous

Question 4

When is the initial franchise fee recognized as revenue?

Answer 4

When the franchiser has substantially performed all material services or conditions. Generally, when franchisee commences operations.

Question 5

List the difference between cost recovery and installment method

Answer 5

No gross profit is recognized for cost recovery method until all costs have been recovered.

Question 6

When is revenue recognized in the consignment goods?

Answer 6

When sold by the consignee

Question 7

How are payments to consignee treated for accounting purposes?

Answer 7

Selling expenses