9. Respond to the following: a. When is revenue generally recognized, and what a
ID: 2582700 • Letter: 9
Question
9. Respond to the following: a. When is revenue generally recognized, and what are three other alternative points in time for recognizing revenue? b. When is each alternative revenue recognition method appropriate and why have these methods evolved? c. What is the primary criterion for revenue recognition applied in practice, and what attributes must be measurable before revenue is recognized.
10. Discuss the effect, if any, each of the following should have on the recognition of future events: a. The probabilistic nature of future events b. Management intent c. Conservatism d. Future economic conditions e. Future legal requirements
Please describe in detail.
Explanation / Answer
a.
Revenue is generally recognized by the company at the point of sale when the title is legally transferred
Three alternative points for recognizing revenue are
b.
For long term construction contracts, revenue may be recognized at the time of production.
Revenue may be recognized at the time of completion of production only when there is immediate marketability at quoted price exists for a product whose units are interchangeable.
If there is no reasonable basis exists for estimating collectability, revenue can be recognized on cash basis either cost recovery or installment.
c.
Completion of earnings process is the primary criterion for revenue recognition applied in practice.
sale price, future costs, cash collection are the three attributes must be measurable before revenue is recognized.
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