Revenue Recognition

Question 1

When would a seller recognize revenue over time rather than at a point in time?

Answer 1

When the benefits are received by the buyer as the seller performs

Question 2

Distinct goods or services

Answer 2

1) Good or service is separately identifiable

2) Customer can benefit from good or service independently

Question 3

When is a performance obligation satisfied?

Answer 3

Performance obligation is satisfied when control is transferred to the buyer. In an example of goods being sold, this would be when the goods have been delivered by the seller

Question 4

Under percentage-of-completion method, annual gross profit equals

Answer 4

(Total cost incurred/ Total Expected Cost)* Total Expected Gross Profit less total gross profit previously recognized. In the final year of the contract, actual rather than expected amounts are used.

Question 5

Total cost of contract equals..

Answer 5

Total cost of contract = Cost incurred + estimated cost to complete

Question 6

Completed Contract IFRS

Answer 6

Under IFRS, completed contract is not permitted

Question 7

Percentage-of-completion current assets

Answer 7

If the sum of cumulative costs incurred plus cumulative gross profit recognized exceeds cumulative billings, the excess is reported as current asset (sometimes called construction in progress)

Question 8

Estimated losses under percentage-of-completion

Answer 8

Estimated losses are recognized in full immediately (conservatism). So no need to multiple by fraction of cost incurred