Kieso Ifrs2e Sm Ch18

ANS0ERS TO "ESTIONS 12

Most revenue transactions pose e pro%lems or revenue reco&nition. (+is is %ecause, in man cases, t+e transaction is initiated and completed at t+e same time. oever, due to t+e comple9it o some transactions, man %elieve t+e revenue reco&nition process is increasin&l comple9 to mana&e, more prone to error, and more material to inancial statements compared to an ot+er area o inancial reportin&. s a result, t+e 7S and =S +ave indicated t+at t+e present state o reportin& or revenue is unsatisactor and t+e oards issued a standard, F0evenue rom Contracts it+ Customers,G in 2'13. (+is ne standard provides a ne approac+ or +o and +en companies s+ould report revenue. (+e standard is compre+ensive and applies to all companies. s a result, compara%ilit and consistenc in reportin& revenue s+ould %e en+anced.

32

=70S lacHed &uidance in a num%er o areas %ecause it +ad onl one standard or revenue reco&nition.

42

(+e revenue reco&nition principle indicates t+at revenue is reco&nied in t+e accountin& period +en a perormance o%li&ation is satisied. (+at is, a compan reco&nies revenue to depict t+e transer o &oods or services to customers in an amount t+at relects t+e consideration t+at it receives, or e9pects to receive, in e9c+an&e or t+ose &oods or services.

52

(+e ive steps in t+e revenue reco&nition process are/ 1. 2. 3. 4. 5.

=denti t+e contract it+ customers. =denti t+e separate perormance o%li&ations in t+e contract. Betermine t+e transaction price. llocate t+e transaction price to t+e separate perormance o%li&ations. 0eco&nie revenue +en eac+ perormance o%li&ation is satisied.

62

C+an&e in control is t+e decidin& actor in determinin& +en a perormance o%li&ation is satisied. Control is transerred +en t+e customer +as t+e a%ilit to direct t+e use o and o%tain su%stantiall all t+e remainin& %eneits rom t+e asset or service. Control is also indicated i t+e customer +as t+e a%ilit to prevent ot+er companies rom directin& t+e use o, or receivin& t+e %eneit, rom t+e asset or service.

72

0evenues are reco&nied &enerall as ollos/ @aA 0evenue rom sellin& productsdate o deliver to customers. @%A 0evenue rom services perormed+en t+e services +ave %een perormed @perormance o%li&ation satisiedA and are %illa%le. @cA 0evenue rom permittin& ot+ers to use compan assetsas time passes or as t+e assets are used. @dA 0evenue rom disposin& o assets ot+er t+an productsat t+e date o sale.

2

(+e irst step in t+e revenue reco&nition process is t+e identiication o a contract or contracts it+ t+e customer.  contract is an a&reement %eteen to or more parties t+at creates enorcea%le ri&+ts or o%li&ations. (+at is, t+e contract identiies t+e perormance o%li&ations in a revenue arran&ement. Contracts can %e ritten, oral, or implied rom customar %usiness practice. =n some cases, t+ere ma %e multiple contracts related to t+e transaction, and accountin& or eac+ contract ma or ma not occur, dependin& on t+e circumstances. (+ese situations oten develop +en not onl a product is provided %ut some tpe o service is perormed as ell.

Copri&+t : 2'14 o+n ile < Sons, =nc.

>ieso, IFRS, 2?e, Solutions Manual

@7or =nstructor se $nlA

18-5

"ue!tion! C9te# 18 @ContinuedA 82

*o entr is reIuired on $cto%er 1', 2'15, %ecause neit+er part +as perormed on t+e contract. (+at is, neit+er part +as an unconditional ri&+t as o $cto%er 1', 2'15. $n Becem%er 15, 2'15, E9ecutor delivers t+e product and t+ereore s+ould reco&nie revenue on t+at date as it satisied its perormance o%li&ation on t+at date. (+e Journal entr to record t+e sales revenue and related cost o &oods sold is as ollos.

.ece&e# 16: 3;16 *otes 0eceiva%le................................................ Cas+.................................................................... Sales 0evenue........................................

5,''' 5,'''

Cost o Doods Sold............................................. =nventor..................................................

6,5''

1','''

6,5''

<2

 contract modiication occurs i a compan c+an&es t+e contract terms durin& t+e term o t+e contract. +en a contract is modiied, t+e compan must determine +et+er a ne perormance o%li&ation +as occurred or +et+er it is a modiication o t+e e9istin& perormance o%li&ation. = it is a modiication o an e9istin& perormance o%li&ation, t+en t+e c+an&e is &enerall reported prospectivel or as a cumulative eect adJustment to revenue , dependin& on t+e circumstances. = t+e modiication results in a separate perormance o%li&ation, t+en t+is perormance o%li&ation s+ould %e accounted or separatel.

1;2

 perormance o%li&ation is a promise in a contract to provide a product or service to a customer. (+is promise ma %e e9plicit, implicit, or possi%l %ased on customar %usiness practice. (o determine +et+er a perormance o%li&ation e9ists, t+e compan must determine +et+er t+e customer can %eneit rom t+e &ood or service on its on or to&et+er it+ ot+er readil availa%le resources.

112

(o determine +et+er t+e compan +as to account or multiple perormance o%li&ations, a compan must irst provide a distinct &ood or service on its on or to&et+er it+ ot+er availa%le resources. $nce t+is condition is met, t+e compan ne9t evaluates +et+er t+e product or service is distinct it+in t+e contract. =n ot+er ords, i t+e perormance o%li&ation is not +i&+l dependent on, or interrelated it+, ot+er promises in t+e contract, t+en eac+ perormance o%li&ation s+ould %e accounted or separatel. Conversel i eac+ o t+ese services is interdependent and interrelated, t+ese services are com%ined and reported as one perormance o%li&ation.

132

=n t+is situation, it appears t+at En&el+art +as to perormance o%li&ations/ @1A one related to providin& t+e tractor and @2A t+e ot+er related to t+e D#S services. ot+ are distinct @t+e can %e sold separatelA and are not interdependent.

142

(+e transaction price is t+e amount o consideration t+at a compan e9pects to receive rom a customer in e9c+an&e or transerrin& &oods and services. (+e transaction price in a contract is oten easil o%tained %ecause t+e customer a&rees to pa a i9ed amount to t+e compan over a s+ort period o time. =n ot+er contracts, companies must consider t+e olloin& actors @1A )aria%le consideration, @2A (ime value o mone, @3A *on-cas+ consideration, and @4A Consideration paid or paa%le to customer.

18-6





)aria%le consideration @+en t+e price o a &ood or service is dependent on uture eventsA, includes suc+ elements as discounts, re%ates, credits, perormance %onuses, or roalties.  compan estimates t+e amount o varia%le consideration it ill receive rom t+e contract to determine t+e amount o revenue to reco&nie. Companies use eit+er @1A t+e e9pected value, +ic+ is a pro%a%ilit ei&+ted amount, or @2A t+e most liHel amount in a ran&e o possi%le amounts to estimate varia%le consideration. Companies select amon& t+ese to met+ods %ased on +ic+ approac+ %etter predicts t+e amount o consideration to +ic+ a compan is entitled.

162

(+e transaction price s+ould include mana&ementKs estimate o t+e amount o consideration to +ic+ t+e entit ill %e entitled. Diven t+e multiple outcomes and pro%a%ilities availa%le %ased on prior e9perience, t+e pro%a%ilit-ei&+ted met+od is t+e most predictive approac+ or estimatin& t+e varia%le consideration. =n t+is situation/ 25L c+ance o 421,''' i % 7e%ruar 1 @25L N 421,'''A O  1'5,25' 25L c+ance o 414,''' i % 7e%ruar 8 @25L N 414,'''A O 1'3,5'' 25L c+ance o 4'!,''' i % 7e%ruar 15 @25L N 4'!,'''A O 1'1,!5' 25L c+ance o 4'',''' i ater 7e%ruar 15 @25L N 4'','''A O 1'','''  41',5'' (+us, t+e total transaction price is 41',5'' %ased on t+e pro%a%ilit-ei&+ted estimate.

172

llee s+ould not allocate varia%le consideration to t+e perormance o%li&ation, unless it is reasona%l assured it is entitled to t+at amount. =n t+is case, it does not +ave e9perience it+ similar contracts and t+ereore is not a%le to estimate t+e cumulative amount o revenue. llee is constrained in reco&niin& varia%le consideration i t+ere mi&+t %e a si&niicant reversal o revenue previousl reco&nied.

12

=n measurin& t+e transaction price, companies maHe t+e olloin& adJustment or/ @aA

(ime value o mone - +en a sales transaction involves a si&niicant inancin& component @t+at is, interest is accrued on consideration to %e paid over timeA, t+e air value @transaction priceA is determined eit+er % measurin& t+e consideration received or % discountin& t+e pament usin& an imputed interest rate. (+e imputed interest rate is t+e more clearl determina%le o eit+er @1A t+e prevailin& rate or a similar instrument o an issuer it+ a similar credit ratin&, or @2A a rate o interest t+at discounts t+e nominal amount o t+e instrument to t+e current sales price o t+e &oods or services. (+e compan ill report t+e eects o t+e inancin& eit+er as interest e9pense or interest revenue.

@%A +en non-cas+ consideration is involved, revenue is &enerall reco&nied on t+e %asis o t+e air value o +at is received. = t+e air value cannot %e determined, t+en t+e compan s+ould estimate t+e sellin& price o t+e &oods delivered or services perormed and reco&nie t+is amount as revenue. =n addition, companies sometimes receive contri%utions @donations, &itsA.  contri%ution is oten some tpe o asset @suc+ as securities, land, %uildin&s or use o acilitiesA %ut it could %e t+e or&iveness o de%t. Similarl, t+is consideration s+ould %e reco&nied as revenue %ased on t+e air value o t+e consideration received.

182

n discounts or volume re%ates s+ould reduce consideration received and reduce revenue reco&nied.

1<2

= an allocation o t+e transaction price to various perormance o%li&ations is needed, t+e allocation is %ased on t+eir relative air value. (+e %est measure o air value is +at t+e compan could sell t+e &ood or service on a standalone %asis @reerred to as t+e standalone sellin& priceA. = t+is inormation is not availa%le, companies s+ould use t+eir %est estimate o +at t+e &ood or service mi&+t sell or as a standalone unit. (+e t+ree approac+es or estimatin& stand-alone sellin& price are @1A dJusted marHet assessment approac+; @2A E9pected cost plus a mar&in approac+, and @3A 0esidual approac+.




18-!

"ue!tion! C9te# 18 @ContinuedA 3;2

Since eac+ element sells separatel and +as a separate standalone value, t+e eIuipment, installation, and trainin& are t+ree separate perormance o%li&ations. (+e total revenue o P8',''' s+ould %e allocated to t+e t+ree perormance o%li&ations %ased on t+eir relative air values. (+us, t+e total estimated air value is P1'','''A @P"',''' Q P!,''' Q P3,'''A. (+e allocation is as ollos. EIuipment @P"',''' R P1'','''A N P8',''' O P!2,'''. =nstallation @P!,''' R P1'','''A N P8',''' O P5,6''. (rainin& @P3,''' R P1'','''A N P8',''' O P2,4''.

312

 compan satisies its perormance o%li&ation +en t+e customer o%tains control o t+e &ood or service. =ndications t+at t+e customer +as o%tained control are/ 1. 2. 3. 4. 5.

332

(+e compan +as a ri&+t to pament or t+e asset. (+e compan transerred le&al title to t+e asset. (+e compan transerred p+sical possession o t+e asset. (+e customer +as t+e si&niicant risHs and reards o oners+ip. (+e customer +as accepted t+e asset.

Companies reco&nie revenue over a period o time i one o t+e olloin& to criteria is met. 1. 2.

(+e customer controls t+e asset as it is created or en+anced. (+e compan does not +ave an alternative use or t+e asset created or en+anced and eit+er @1A t+e customer receives %eneits as t+e compan perorms and t+ereore, t+e tasH ould not need to %e re-perormed, or @2A (+e compan +as a ri&+t to pament and t+is ri&+t s+ould %e enorcea%le.

342

 compan reco&nies revenue rom a perormance o%li&ation over time % measurin& t+e pro&ress toard completion. (+e met+od selected or measurin& pro&ress s+ould depict t+e transer o control rom t+e compan to t+e customer. (+e most common are t+e cost-to-cost and units-o-deliver met+ods. (+e o%Jective o all t+ese met+ods is to measure t+e e9tent o pro&ress in terms o costs, units, or value added. Companies identi t+e various measures @costs incurred, la%or +ours orHed, tons produced, loors completed, etc.A and classi t+em as input or output measures. =nput measures @costs incurred, la%or +ours orHedA are eorts devoted to a contract. $utput measures @it+ units o deliver measured as tons produced, loors o a %uildin& completed, miles o a +i&+a completedA tracH results. *eit+er is universall applica%le to all lon&-term proJects. (+eir use reIuires t+e e9ercise o Jud&ment and careul tailorin& to t+e circumstances. (+e most popular input measure used to determine t+e pro&ress toard completion is t+e cost-to-cost %asis. nder t+is %asis, a compan measures t+e percenta&e o completion % comparin& costs incurred to date it+ t+e most recent estimate o t+e total costs reIuired to complete t+e contract.

352

(o account or sales it+ ri&+ts o return, @and or some services t+at are provided su%Ject to a reundA, companies &enerall reco&nie all o t+e olloin&.

18-8

a.

0evenue or t+e transerred products in t+e amount o consideration to +ic+ seller is reasona%l assured to %e entitled @considerin& t+e products e9pected to %e returnedA.

%. c.

 reund lia%ilit. n asset @and correspondin& adJustment to cost o salesA or its ri&+t to recover inventor rom t+e customer. (+us, at t+e time o sale, onl t+e revenue not su%Ject to estimated reund is reco&nied. (+e remainin& revenue is reco&nied +en t+e reund provision e9pires. Copri&+t : 2'14 o+n ile < Sons, =nc.




= a compan sells a product in one period and a&rees to %u it %acH in t+e ne9t period, le&al title +as transerred, %ut t+e economic su%stance o t+e transaction is t+at t+e seller retains t+e risHs o oners+ip. +en t+is occurs, t+e transaction is oten a inancin& arran&ement and does not &ive rise to revenue.

372

ill-and-+old sales result +en t+e %uer is not et read to taHe deliver %ut t+e %uer taHes title and accepts %illin&. 0evenue is reco&nied at t+e time title passes, i all o t+e olloin& criteria are met/ @aA @%A @cA @dA

(+e reason or t+e %ill-and-+old arran&ement must %e su%stantive. (+e product must %e identiied separatel as %elon&in& to t+e customer. (+e product currentl must %e read or p+sical transer to t+e customer. (+e seller cannot +ave t+e a%ilit to use t+e product or to direct it to anot+er customer.

32

=n a principal-a&ent relations+ip, amounts collected on %e+al o t+e principal are not revenue o t+e a&ent. (+e revenue or t+e a&ent is t+e amount o t+e commission it receives @usuall a percenta&e o t+e sellin& priceA.

382

 sale on consi&nment is t+e s+ipment o merc+andise rom a manuacturer @or +olesalerA to a dealer @or retailerA it+ title to t+e &oods and t+e risH o sale %ein& retained % t+e manuacturer +o %ecomes t+e consi&nor. (+e consi&nee @dealerA is e9pected to e9ercise due dili&ence in carin& or t+e merc+andise and t+e dealer +as ull ri&+t to return t+e merc+andise. (+e consi&nee receives a commission upon t+e sale and remits t+e %alance o t+e cas+ collected to t+e consi&nor. (+e consi&nor reco&nies a sale and t+e related revenue upon notiication o sale rom t+e consi&nee and receipt o t+e cas+. (+e consi&ned &oods are carried in t+e consi&norKs inventor, not t+e consi&neeKs, until sold.

3<2

(+e to tpes o arranties are/ a.

arranties t+at t+e product meets a&reed-upon speciications in t+e contract at t+e time t+e product is sold. (+is tpe o arrant is included in t+e sale price o companKs product and is oten reerred to as an assurance-tpe arranties.

%.

arranties t+at provide an additional service %eond t+e assurance tpe arrant. (+is arrant is not included in t+e sale price o t+e product and is reerred to as a service-tpe arrant.

Companies do not record a separate perormance o%li&ation or assurance tpe arranties. (+ese tpes o arranties are not+in& more t+an a Iualit &uarantee t+at t+e &ood or service is ree rom deects at t+e point o sale. (+ese tpe o o%li&ations s+ould %e e9pensed in t+e period t+e &oods are provided or services perormed @=n ot+er ords, at t+e point o saleA. =n addition, t+e compan s+ould record a arrant lia%ilit. (+e estimated amount o t+e lia%ilit includes all t+e costs t+at t+e compan ill incur ater sale and t+at are incident to t+e correction o deects or deiciencies reIuired under t+e arrant provisions. arranties t+at provide t+e customer a service %eond i9in& deects t+at e9isted at t+e time o sale represent a separate service and are an additional perormance o%li&ation. s a result, companies s+ould allocate a portion o t+e transaction price to t+is perormance o%li&ation. (+e compan reco&nies revenue in t+e period t+at t+e service-tpe arrant is in eect.

4;2

(+e total transaction price is >P42' >P3'' Q @>P5 N 24AT. (+at is, >on Cellular is providin& a service in t+e second ear it+out receivin& an upront ee. (+us t+e upront ee s+ould %e reco&nied as revenue over to periods. s a result, >on Cellular reco&nies revenue o >P21' @>P42' R 2A in %ot+ ear 1 and ear 2. "ue!tion! C9te# 18 @ContinuedA Copri&+t : 2'14 o+n ile < Sons, =nc.



18-"

412

432

nder t+e asset-lia%ilit model or reco&niin& revenue, companies reco&nie assets and lia%ilities accordin& to t+e deinitions o assets and lia%ilities in a revenue arran&ement. 7or e9ample, +en a compan +as a ri&+t to consideration or meetin& a perormance o%li&ation, it +as a ri&+t to consideration rom t+e customer and t+ereore +as a contract asset.  contract lia%ilit is a companKs o%li&ation to transer &oods or services to a customer or +ic+ t+e compan +as received consideration rom t+e customer. (+us, i t+e customer perorms irst, % prepain& or t+e product, t+en t+e seller +as a contract lia%ilit. Companies must present t+ese contract assets and contract lia%ilities on t+eir %alance s+eet. Contract assets are o to tpes/ @aA nconditional ri&+ts to receive consideration %ecause t+e compan +as satisied its perormance o%li&ation it+ customer, and @%A Conditional ri&+ts to receive consideration %ecause t+e compan +as satisied one perormance o%li&ation, %ut must satis anot+er perormance o%li&ation in t+e contract %eore it can %ill t+e customer. Companies s+ould report unconditional ri&+ts to receive consideration as a receiva%le on t+e %alance s+eet. Conditional ri&+ts on t+e %alance s+eet s+ould %e reported separatel as contract assets. @aA Companies divide ulillment costs @contract acIuisition costsA into to cate&ories/ @1A t+ose t+at &ive rise to an asset, and @2A t+ose t+at are e9pensed as incurred. Companies reco&nie an asset or t+e incremental costs, i t+ese costs are incurred to o%tain a contract it+ a customer. =n ot+er ords, incremental costs are costs t+at a compan ould not incur i t+e contract +ad not %een o%tained @or e9ample, sellin& commissionsA. $t+er e9amples are/ @aA Birect la%or, direct materials, and allocation o costs t+at relate directl to t+e contract @suc+ as costs o contract mana&ement and supervision, insurance, and depreciation o tools and eIuipmentA, and @%A Costs t+at &enerate or en+ance resources o t+e compan t+at ill %e used in satisin& perormance o%li&ations in t+e uture. Costs include intan&i%le desi&n or en&ineerin& costs t+at ill continue to %eneit in t+e uture. Companies capitalie costs t+at are direct, incremental, and recovera%le @assumin& t+at t+e contract period is more t+an one earA. @%A Collecti%ilit  +et+er a compan ill &et paid or satisin& a perormance o%li&ation is not a consideration in determinin& revenue reco&nition. (+at is, t+e amount reco&nied is not adJusted or customer credit risH. 0at+er, companies report t+e revenue &ross and t+en present an alloance or an impairment due to %ad de%ts @reco&nied initiall and su%seIuentl in accordance it+ t+e respective %ad de%t &uidanceA prominentl as an e9pense in t+e income statement. = si&niicant dou%t e9ists at contract inception a%out collecta%ilit, it oten indicates t+at t+e parties are not committed to t+eir o%li&ations. s a result, conditions or t+e e9istence o a contract are not met and t+ereore revenue is not reco&nied.

442

18-1'

Uuantitative disclosures include/ @aA Contracts it+ customers  (+ese disclosures include t+e disa&&re&ation o revenue, presentation o openin& and closin& %alances in contract assets and contract lia%ilities, and si&niicant inormation related to its perormance o%li&ations; @%A Uualitative disclosures include inormation on si&niicant Jud&ments. (+ese disclosures include Jud&ments and c+an&es in t+ese Jud&ments t+at aect t+e determination o t+e transaction price, t+e allocation o t+e transaction price and t+e determination o t+e timin& o revenue; @cA ssets reco&nied rom costs incurred to ulill contractt+ese disclosures include t+e closin& %alances o assets reco&nied to o%tain or ulill a contract, t+e amount o amortiation reco&nied and t+e met+od used or amortiation.




"ue!tion! C9te# 18 @ContinuedA =452

(+e to %asic met+ods o accountin& or lon&-term construction contracts are/ @1A t+e percenta&eo-completion met+od and @2A t+e cost-recover met+od. (+e percenta&e-o-completion met+od is preera%le +en estimates o costs to complete and e9tent o pro&ress toard completion o lon&-term contracts are reasona%l dependa%le. (+e percenta&e-o-completion met+od s+ould %e used in circumstances +en #e!on&'* /een/&'e e!tite! cn &e /e n/> @1A (+e contract contract clearl speciies speciies t+e enorcea%le enorcea%le ri&+ts re&ardin& re&ardin& &oods or services services to %e prov provid ided ed and and rece receiv ived ed % t+e part partie ies, s, t+e t+e cons consid ider erat atio ion n to %e e9c+a e9c+an& n&ed ed,, and and t+e t+e manner and terms o settlement. @2A (+e %uer can %e e9pected to satis satis all o%li&ations o%li&ations under t+e contract. @3A (+e contractor can %e e9pected to perorm t+e contractual o%li&ations. (+e cost-reco cost-recover ver met+od is preera%le preera%le +en t+e lacH o dependa%le estimates estimates or in+erent in+erent +aards cause orecasts to %e dou%tul.

=462

nder t+e percenta&epercenta&e-o-co o-complet mpletion ion met+od, met+od, income income is reported reported to relect relect more accuratel accuratel t+e production eort. =ncome is reco&nied periodicall on t+e %asis o t+e percenta&e o t+e Jo% completed rat+er t+an onl +en t+e entire Jo% is completed. (+e principal disadvanta&e o t+e cost-recover met+od is t+at it ma lead to distortion o earnin&s %ecause no attempt is made to relec relectt curren currentt peror perorman mance ce +en +en t+e period period o t+e contra contract ct e9ten e9tends ds into into more more t+an t+an one accountin& period.

=472

(+e met+ods used to determine t+e e9tent o pro&ress toard completion are t+e cost-to-cost met+od and units-o-deliver met+od. Costs incurred and la%or +ours orHed are e9amples o inut e!u#e!: +ile tons produced, stories o a %uildin& completed, and miles o +i&+a completed are e9amples o outut e!u#e!2

=42

(+e to tpes o losses t+at can %ecome evident in accountin& or lon&-term contracts are/ @1A  current current period loss involved in a contract t+at, upon completion, completion, is e9pected to produce produce a proit. @2A  loss related to an unproita%le unproita%le contract. (+e irst tpe o loss is actuall an adJustment in t+e current period o &ross proit reco&nied on t+e contract in prior periods. =t arises +en, durin& construction, t+ere is a si&niicant increase in t+e estimated total contract costs %ut t+e increase does not eliminate all proit on t+e contract. nder t+e percenta&e-o-completion met+od, t+e estimated cost increase necessitates a current period adJustment o previousl reco&nied &ross proit; t+e adJustment results in recordin& a current period loss. *o adJustment is necessar under t+e cost-recover met+od %ecause &ross proit is onl reco&nied upon completion o t+e contract. Cost estimates at t+e end o t+e current period ma indicate t+at a loss ill result upon completion o t+e entire contract. nder %ot+ met+ods, t+e entire loss must %e reco&nied in t+e current period.

=482

=t is improper to reco&nie t+e entire ranc+ise ee as revenue at t+e date o sale +en man o t+e services o t+e ranc+isor are et to %e perormed.

4<2

Continuin& ranc+ise ees s+ould %e reported as revenue +en t+e perormance o%li&ations relate related d to t+ose t+ose ees ees +ave +ave %een %een satis satisied ied % t+e ranc+ ranc+iso isorr. (+ese (+ese revenu revenues es are &enera &enerall ll reco&nied over time as t+e t+e related product and services are provided. Continuin& product sales ould %e accounted or in t+e same same manner as ould an ot+er product sales. sales.




18-11

SOLTIONS TO BRIEF E?ERCISES BRIEF E?ERCISE 18@1 No ent#* i! #eui#e/ on M* 1;: 3;16: &ecu!e neit9e# #t* 9! e#$o#e/ on t9e cont#ct2 T9t i!: neit9e# #t* 9! n uncon/ition' #ig9t ! o$ M* 1;: 3;162 On +une 16: 3;16: Co!o /e'ive#! t9e #o/uct n/ t9e#e$o#e !9ou !9ou'/ '/ #e #eco cogn gni ie e #e #eve venu nue e ! it #e #ece ceiv ive/ e/ n unco uncon/ n/it itio ion n'' #ig9 #ig9tt to con!i/e#tion on t9t /te2 In //ition: Co!o !ti!$ie! it! e#$o#nce o&'igtion &* /e'ive#ing t9e #o/uct to G#eig2 T9e -ou#n' ent#* to #eco#/ t9e !'e n/ #e'te/ co!t o$ goo/! !o'/ i! ! $o''o!2 +une 16: 3;16 Accoun ccount! t! Rece Receiv iv& &'e 'e22 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 22222 222222 222222 222222 22222 22222 22222 22222 22222 22222 22222 2222 22 S'e! Revenue222222222222222222222222222222222222222222222222222222222222

3:;; 3:;;; ;

Co!t Co!t o$ Goo/ Goo/! ! So'/22 So'/2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 22222 22222 22222 22222 22222 22222 Invento#*2222222222222222222222222222222222222222222222222222222222222222222222

1:4; 1:4;; ;

3:;;;

1:4;;

A$te# $te# #e #ece ceiv ivin ing g t9e t9e c c!9 !9 * *en entt on +u'* +u'* 16 16:: 3; 3;16 16:: Co! Co!o o De De! ! t9e t9e $o''oing ent#*2 +u'* 16: 3;16 C!922 C!922222 222222 222222 222222 222222 222222 222222 222222 222222 222222 222222 222222 222222 222222 222222 222222 222222 222222 222222 222222 222222 222222 222222 222222 222222 222222 2222222 222222 Account! Receiv&'e22222222222222222222222222222222222222222222222222

3:;;; 3:; ;; 3:;;;

BRIEF E?ERCISE 18@3 In ev'uting 9o to ccount $o# t9e o/i$iction: Stenge' Co2 conc'u/e! t9t t9e #eining !e#vice! to &e #ovi/e/ #e /i!tinct $#o t9e !e#vice! t#n!$e##e/ on o# &e$o#e t9e /te o$ t9e cont#ct o/i$iction2 In //ition: Stenge' 9! t9e #ig9t to #eceive n ount o$ con!i/e#tion t9t #e$'ect! t9e !tn/'one !e''ing #ice o$ t9e #e/uce/ enu o$ intennce !e#vice!2 T9e#e$o#e: Stenge' ''octe! t9e ne t#n!ction #ice o$ 8;:;;; to t9e t9i#/ *e# o$ !e#vice2 In e$$ect: Stenge' !9ou'/ ccount $o# t9i! o/i$iction !  te#intion o$ t9e o#igin' cont#ct n/ t9e c#etion o$  ne cont#ct2

18-12




BRIEF E?ERCISE 18@4 I! I!i' ccoun count! t! $o# $o# t9e &un &un/'e /'e o$ goo/ goo/! ! n/ !e# e#vi vic ce! !  !ing' ng'e e#$o#nce o&'igtion &ecu!e t9e goo/! o# !e#vice! in t9e &un/'e #e 9ig9'* inte##e'te/2 I!i' '!o #ovi/e!  !igni$icnt !e#vice &* integ#ting t9e goo/! o# !e#vice! into t9e co&ine/ ite (t9t i!: t9e 9o!it') $o# 9ic9 t9e cu!toe# 9! cont#cte/2 In //ition: t9e goo/! o# !e#vice! #e !igni$icnt'* o/i$ie/ n/ cu!toie/ to $u'$i'' t9e cont#ct2 Revenue $o# t9e e#$o#nce o&'igtion ou'/ &e #ecognie/ ove# tie &* !e'ecting n #o#ite e!u#e o$ #og#e!! to#/ !ti!$ction o$ t9e e#$o#nce o&'igtion2 BRIEF E?ERCISE 18@5 T9e T9e e#$ e#$o# o# nc nce e o&'i o&'ig gti tion on! ! #e #e' 'te te to t9e t9e 'ice 'icen! n!e e n/ n/ t9e t9e con! con!u' u'ti ting ng !e#vice!2 T9e* #e /i!tinct2 () ()

I$ inte inte#/ #/e een en/e /ent nt:: t9e cont# cont#c ctt i! ccou ccount nte/ e/ $o# $o# !  !ing' !ing'e e #even #evenue ue ount o$ 3;;:;;;2

(&) (&)

I$ not inte inte#/ #/e een en/e /ent nt:: !e !e#v #vic ice e #e #eve venu nue e i!  6: 6:;; ;;; ; n/ n/ t9e t9e 'ice 'icen! n!e e #evenue i! 136:;;;: &!e/ on e!tite/ !tn/'one v'ue!2

BRIEF E?ERCISE 18@6 T9e t#n!ction #ice !9ou'/ inc'u/e ngeent! ngeent! e!tite o$ t9e ount o$ con!i/e#tion to 9ic9 t9e entit* i'' &e entit'e/2 Given t9e u'ti'e outc outco oe! e! n/ n/ #o& #o&& &i' i'it itie ie! ! v vi i' '&' &'e e &!e &!e/ / on #io #io## e% e%e e#i #ien ence ce:: t9e t9e #o&&i'it*@eig9te/ #o&&i'it*@eig9te/ et9o/ i! t9e o!t #e/ictive #oc9 $o# e!titing t9e v#i&'e con!i/e#tion in t9i! !itution> Co'etion .te Augu!t 1 Augu!t 8 Augu!t 16 A$te# Augu!t 16

P#o&&i'it*

E%ecte/ ,'ue

; c9nce o$ 1:16;:;;;   8;6:;;; 3; c9nce o$ 1:1;;:;;;  33;:;;; 6 c9nce o$ 1:;6;:;;;  63:6;; 6 c9nce o$ 1:;;;:;;;  6;:;;; 1:13:6;;

T9u!: t9e tot' t#n!ction #ice i! 1:13:6;; &!e/ on t9e #o&&i'it*@ eig9te/ e!tite2 e!tite2




18-13

BRIEF E?ERECISE 18@7 () In t9i! !itution: Ni# u!e! t9e o!t 'iDe'* ount ! t9e e!tite @ 1:16;:;;;2 (&) 09en t9e#e i! 'iite/ in$o#tion it9 9ic9 to /eve'o  #e'i&'e e!tite o$ co'etion: t9en no #evenue #e'te/ to t9e incentive !9ou'/ &e #ecognie/ unti' t9e unce#tint* i! #e!o've/2 T9e#e$o#e: no #evenue i! #ecognie/ unti' t9e co'etion o$ t9e cont#ct2

BRIEF E?ERCISE 18@ +nu#* 3: 3;16 Note! Receiv&'e222222222222222222222222222222222222222222222222222222 .i!count on Note! Receiv&'e2222222222222222222222222 S'e! Revenue222222222222222222222222222222222222222222222222222

11:;;;

Co!t o$ Goo/! So'/ 22222222222222222222222222222222222222222222222222 Invento#* 22222222222222222222222222222222222222222222222222222222222

7:;;;

1:;;; 1;:;;;

7:;;;

Revenue Recognie/ in 3;16 S'e! #evenue222222222222222222222222222222222222222222222222222222222222 Inte#e!t #evenue (R11:;;; J R1;:;;;)222222222222222222 Tot' #evenue22222222222222222222222222222222222222222222222222222

R1;:;;; 1:;;; R11:;;;

BRIEF E?ERCISE 18@8 P#neviD !9ou'/ #eco#/ #evenue o$ K77;:;;; on M#c9 1: 3;16: 9ic9 i! t9e $i# v'ue o$ t9e invento#* in t9i! c!e2 P#neviD i! '!o $inncing t9i! u#c9!e n/ #eco#/! inte#e!t #evenue on t9e note ove# t9e 5@*e# e#io/2 In t9i! c!e: t9e inte#e!t #te i! iute/ to &e 1; (K77;:;;;K1:;73:<4  2 73;<: 9ic9 i! t9e P, o$ K1 $cto# $o# n  6: I  1;)2 P#neviD #eco#/! inte#e!t #evenue o$ K66:;;; (1; ? K77;:;;; ? 1;13) t .ece&e# 41: 3;16

18-14




BRIEF E?ERCISE 18@8 (continue/) () T9e -ou#n' ent#ie! to #eco#/ P#neviD! !'e to Goo!en Inc2 n/ #e'te/ co!t o$ goo/! !o'/ i! ! $o''o!2 M#c9 1: 3;16 Note! Receiv&'e22222222222222222222222222222222222222222222222 S'e! Revenue2222222222222222222222222222222222222222222 .i!count on Note! Receiv&'e22222222222222222

1:;73:<4

Co!t o$ Goo/! So'/222222222222222222222222222222222222222 Invento#*22222222222222222222222222222222222222222222222222222

5;;:;;;

77;:;;; 5;3:<4

5;;:;;;

(&) P#neviD De! t9e $o''oing ent#* to #eco#/ inte#e!t #evenue $o# 3;162 .ece&e# 41: 3;16 .i!count on Note! Receiv&'e2222222222222222222222222 Inte#e!t Revenue (1; ? K77;:;;; ? 1;13)22222222222222222222222

66:;;; 66:;;;

A!  #ctic' e%e/ient: conie! #e not #eui#e/ to #e$'ect t9e tie v'ue o$ one* to /ete#ine t9e t#n!ction #ice i$ t9e tie e#io/ $o# *ent i! 'e!! t9n  *e#2 BRIEF E?ERCISE 18@< +nu#* incoe222222222222222222222222222222222222222222222222222222222 Fe&#u#* incoe (5:;;; J 4:;;;) ? 6;222222222222222 M#c9 incoe (5:;;; J 4:;;;) ? 4;)222222222222222222 A#i' incoe (5:;;; J 4:;;;) ? 3;)222222222222222222222

 ; 6;; 4;; 3;;

BRIEF E?ERCISE 18@1; Account! Receiv&'e222222222222222222222222222222222222222222222222 S'e! Revenue (11;:;;; ? <5)222222222222222222222

1;4:5;; 1;4:5;;

No'n #e/uce! #evenue &* 7:7;; (11;:;;; J 1;4:5;;) &ecu!e it i! #o&&'e t9t it i'' #ovi/e #e&te! ounting to 72 A!  #e!u't: No'n #ecognie/ #evenue o$ 1;4:5;;2 Copri&+t : 2'14 o+n ile < Sons, =nc.



18-15

BRIEF E?ERCISE 18@11 +u'* 1: 3;16 No ent#* J neit9e# #t* 9! e#$o#e/ un/e# t9e cont#ct2 On Sete&e# 1: 3;16: Ge#t9! 9! to e#$o#nce o&'igtion!> (1) t9e /e'ive#* o$ t9e in/o! n/ (3) t9e in!t''tion o$ t9e in/o!2 0in/o! In!t''tion Tot'

3:;;; 7;; 3:7;;

A''oction 0in/o! (3:;;;  3:7;;) ? 3:5;;  1:857 In!t''tion (7;;  3:7;;) ? 3:5;;  665 Revenue #ecognie/ 3:5;; (#oun/e/ to ne#e!t /o''#) Ge#t9! De! t9e $o''oing ent#ie! $o# /e'ive#* n/ in!t''tion2 Sete&e# 1: 3;16 C!9222222222222222222222222222222222222222222222222222222222222222222222222222 Account! Receiv&'e222222222222222222222222222222222222222222222222 ne#ne/ Se#vice Revenue 22222222222222222222222222222 S'e! Revenue 22222222222222222222222222222222222222222222222222

3:;;; 5;;

Co!t o$ Goo/! So'/222222222222222222222222222222222222222222222222222 Invento#*222222222222222222222222222222222222222222222222222222222222

1:1;;

665 1:857 1:1;;

(0in/o! /e'ive#e/: e#$o#nce o&'igtion $o# in!t''tion #eco#/e/) Octo&e# 16: 3;16 C!9222222222222222222222222222222222222222222222222222222222222222222222222222 ne#ne/ Se#vice Revenue22222222222222222222222222222222222222 Se#vice Revenue (In!t''tion)2222222222222222222222222 Account! Receiv&'e2222222222222222222222222222222222222222

5;; 665 665 5;;

T9e !'e o$ t9e in/o! i! #ecognie/ once /e'ive#e/2 T9e in!t''tion $ee i! #ecognie/ 9en t9e in/o! #e in!t''e/2

18-16




BRIEF E?ERCISE 18@13 ()

+u'* 1: 3;16 No ent#* J neit9e# #t* 9! e#$o#e/ un/e# t9e cont#ct2

On Sete&e# 1: 3;16: Ge#t9! 9! to e#$o#nce o&'igtion!> (1) t9e /e'ive#* o$ t9e in/o! n/ (3) t9e in!t''tion o$ t9e in/o!2 0in/o! In!t''tion (5;; Q (3; ? 5;;) Tot'

3:;;; 58; 3:58;

A''oction 0in/o! (3:;;;  3:58;) ? 3:5;;  1:<46 In!t''tion (58;  3:58;) ? 3:5;;  576 Revenue #ecognie/ 3:5;; (#oun/e/ to ne#e!t /o''#) Ge#t9! De! t9e $o''oing ent#ie! $o# /e'ive#* n/ in!t''tion2 Sete&e# 1: 3;16 C!9222222222222222222222222222222222222222222222222222222222222222222222222222 Account! Receiv&'e222222222222222222222222222222222222222222222222 ne#ne/ Se#vice Revenue 22222222222222222222222222222 S'e! Revenue 22222222222222222222222222222222222222222222222222

3:;;; 5;;


1:1;;

576 1:<46 1:1;;


5;; 576 576 5;;

T9e !'e o$ t9e in/o! i! #ecognie/ once /e'ive#e/2 T9e in!t''tion i! $ee i! #ecognie/ 9en t9e in/o! #e in!t''e/2




18-1!

BRIEF E?ERCISE 18@13 (continue/) (&) I$ G#et9! cnnot e!tite t9e co!t! $o# in!t''tion: t9en t9e #e!i/u' #oc9 i! u!e/2 In t9i! #oc9: t9e tot' $i# v'ue o$ t9e cont#ct i! 3:5;;2 Given t9t t9e in/o! 9ve  !tn/'one $i# v'ue o$ 3:;;;: t9en 5;; (3:5;; J 3:;;;) i! ''octe/ to t9e in!t''tion2 Ge#t9! De! t9e $o''oing ent#ie! $o# /e'ive#* n/ in!t''tion2 Sete&e# 1: 3;16 C!9222222222222222222222222222222222222222222222222222222222222222222222222222 Account! Receiv&'e222222222222222222222222222222222222222222222222 ne#ne/ Se#vice Revenue 22222222222222222222222222222 S'e! Revenue 22222222222222222222222222222222222222222222222222

3:;;; 5;;


1:1;;

5;; 3:;;;

1:1;;


5;; 5;; 5;; 5;;

BRIEF E?ERCISE 18@14 +u'* 1;: 3;16 () Account! Receiv&'e 222222222222222222222222222222222222222 Re$un/ Li&i'it* (16 ? K;;:;;;)222222222222 S'e! Revenue2222222222222222222222222222222222222222222 Co!t o$ Goo/! So'/ 222222222222222222222222222222222222222222 E!tite/ Invento#* Retu#n!222222222222222222222222222 Invento#* 2222222222222222222222222222222222222222222222222222

;;:;;; 1;6:;;; 6<6:;;; 57:;;; 85:;;;= 67;:;;;

=(K67;:;;;  K;;:;;;) ? K1;6:;;; 18-18




BRIEF E?ERCISE 18@14 (continue/) Octo&e# 11: 3;16 (&) Re$un/ Li&i'it* 222222222222222222222222222222222222222222222222 Account! Receiv&'e 22222222222222222222222222222222 Retu#ne/ Invento#* 222222222222222222222222222222222222222222 E!tite/ Invento#* Retu#n! 2222222222222222222

8:;;; 8:;;; 73:5;;= 73:5;;

=(K67;:;;;  K;;:;;;) ? K8:;;; BRIEF E?ERCISE 18@15 on t#n!$e# o$ cont#o' o$ t9e #o/uct!: #i!tin ou'/ #ecognie> () Revenue o$ 6:8;; (3; ? 3<; 4;;@1;) #o/uct! e%ecte/ not to &e #etu#ne/) (&) A #e$un/ 'i&i'it* $o# 3;; (3; #e$un/ ? 1; #o/uct! e%ecte/ to &e #etu#ne/) (c) An !!et o$ 13; (13 ? 1; #o/uct!) $o# it! #ig9t to #ecove# #o/uct! $#o cu!toe#! on !ett'ing t9e #e$un/ 'i&i'it*2 Hence: t9e ount #ecognie/ in co!t o$ goo/! !o'/ $o# 3<; #o/uct! i! 4:58; (13 ? 3<;)2 T9e -ou#n' ent#ie! to #eco#/ t9e !'e n/ #e'te/ co!t o$ goo/! !o'/ #e ! $o''o!> C!9222222222222222222222222222222222222222222222222222222222222222222222222222 S'e! Revenue222222222222222222222222222222222222222222222222222 Re$un/ Li&i'it*22222222222222222222222222222222222222222222222222 Co!t o$ Goo/! So'/222222222222222222222222222222222222222222222222222 E!tite/ Invento#* Retu#n!22222222222222222222222222222222222 Invento#* (4;; ? 13)22222222222222222222222222222222222222222

7:;;; 6:8;; 3;; 4:58; 13; 4:7;;

I$ t9e con* i! un&'e to e!tite t9e 'eve' o$ #etu#n! it9 n* #e'i&i'it*: it !9ou'/ not #eo#t n* #evenue unti' t9e #etu#n! #e #e/ict&'e2




18-1"

BRIEF E?ERCISE 18@16 09en to #ecognie #evenue in  &i''@n/@9o'/ ##ngeent /een/! on t9e ci#cu!tnce!2 Mi''! /ete#ine! 9en it 9! !ti!$ie/ it! e#$o#nce o&'igtion to t#n!$e#  #o/uct &* ev'uting 9en S9oB#& o&tin! cont#o' o$ t9t #o/uct2 Fo# S9oB#& to 9ve o&tine/ cont#o' o$  #o/uct in  &i''@n/@9o'/ ##ngeent: '' o$ t9e $o''oing c#ite#i !9ou'/ &e et> () T9e #e!on $o# t9e &i''@n/@9o'/ ##ngeent u!t &e !u&!tntive2 (&) T9e #o/uct u!t &e i/enti$ie/ !e#te'* ! &e'onging to t9e S9oB#&2 (c) T9e #o/uct cu##ent'* u!t &e #e/* $o# 9*!ic' t#n!$e# to S9oB#&2 (/) Mi''! cnnot 9ve t9e &i'it* to u!e t9e #o/uct o# to /i#ect it to not9e# cu!toe#2 In t9i! c!e: t9e c#ite#i #e !!ue/ to &e et2 A!  #e!u't: #evenue #ecognition !9ou'/ &e e#itte/ t t9e tie t9e cont#ct i! !igne/2 Mi''! De! t9e $o''oing ent#* to #eco#/ t9e &i'' n/ 9o'/ !'e2 +une 1: 3;16 Account! Receiv&'e222222222222222222222222222222222222222222222222 S'e! Revenue222222222222222222222222222222222222222222222222222

3;;:;;;


11;:;;;

3;;:;;;

11;:;;;

Mi''! De! t9e $o''oing ent#* to #eco#/ t9e c!9 #eceive/2 Sete&e# 1: 3;16 C!9222222222222222222222222222222222222222222222222222222222222222222222222222 Account! Receiv&'e2222222222222222222222222222222222222222

3;;:;;; 3;;:;;;

I$  !igni$icnt e#io/ o$ tie e'!e! &e$o#e *ent: t9e ccount! #eceiv&'e i! /i!counte/2 In //ition: i$ one o$ t9e $ou# con/ition! i! vio'te/: #evenue #ecognition !9ou'/ &e /e$e##e/ unti' t9e goo/! #e /e'ive#e/ to S9oB#&2

18-2'




BRIEF E?ERCISE 18@17 Account! P*&'e (S9iA* C#ui!e 'ine!)222222222222222222222 S'e! Revenue (R;:;;; ? 7)22222222222222222222222222222222 C!922222222222222222222222222222222222222222222222222222222222222222222222222222

;:;;; 5:3;; 76:8;;

BRIEF E?ERCISE 18@1 C!92222222222222222222222222222222222222222222222222222222222222222222222222222222222222 A/ve#ti!ing E%en!e2222222222222222222222222222222222222222222222222222222222 Coi!!ion E%en!e22222222222222222222222222222222222222222222222222222222 Revenue (con!ignent!)2222222222222222222222222222222222222222222

18:86;= 6;; 3:16; 31:6;;

=31:6;; J 6;; J (31:6;; ? 1;) Co!t o$ Goo/! So'/222222222222222222222222222222222222222222222222222222222222 Invento#* on Con!ignent 7; ? (3;:;;; Q 3:;;;)22222222222222222222222222222222222222

14:3;; 14:3;;

BRIEF E?ERCISE 18@18 T'#c*D De! t9e $o''oing ent#* to #eco#/ t9e !'e! o$ #o/uct! it9 ##ntie!2 +u'* 1: 3;16 C!9222222222222222222222222222222222222222222222222222222222222222222222222222 0##nt* E%en!e22222222222222222222222222222222222222222222222222222 0##nt* Li&i'it*2222222222222222222222222222222222222222222222 ne#ne/ 0##nt* Revenue222222222222222222222222222 S'e! Revenue222222222222222222222222222222222222222222222222222

1:;13:;;; 5;:;;; 5;:;;; 13:;;; 1:;;;:;;;

To #e/uce invento#* n/ #ecognie co!t o$ goo/! !o'/> Co!t o$ Goo/! So'/222222222222222222222222222222222222222222222222222 Invento#*222222222222222222222222222222222222222222222222222222222222



66;:;;; 66;:;;;


18-21

BRIEF E?ERCISE 18@18 (continue/) T'#c*D #e/uce! t9e 0##nt* Li&i'it* ccount ove# t9e $i#!t to *e#! ! t9e ctu' ##nt* co!t! #e incu##e/ T9e con* '!o #ecognie! #evenue #e'te/ to t9e !e#vice t*e ##nt* ove# t9e to@*e# e#io/ t9t e%ten/! &e*on/ t9e !!u#nce ##nt* e#io/ (to *e#!)2 In o!t c!e!: t9e une#ne/ ##nt* #evenue i! #ecognie/ on  !t#ig9t 'ine &!i! n/ t9e co!t! !!ocite/ it9 t9e !e#vice t*e ##nt* #e e%en!e/ ! incu##e/2 BRIEF E?ERCISE 18@1< No ent#* i! #eui#e/ on M* 1: 3;16 &ecu!e neit9e# #t* 9! e#$o#e/ on t9e cont#ct2 On +une 16: 3;16: E#ic g#ee/ to * t9e $u'' #ice n/ t9e#e$o#e Mount 9! n uncon/ition' #ig9t to t9o!e $un/! on t9t /te2 On #eceiving t9e c!9 on +une 16: 3;16: Mount #eco#/! t9e $o''oing ent#*2 +une 16: 3;16 C!9222222222222222222222222222222222222222222222222222222222222222222222222222 ne#ne/ S'e! Revenue2222222222222222222222222222222222

36:;;; 36:;;;

On !ti!$*ing t9e e#$o#nce o&'igtion on Sete&e# 4;: 3;16: Mount #eco#/! t9e $o''oing ent#* Sete&e# 4;: 3;16 ne#ne/ S'e! Revenue22222222222222222222222222222222222222222 S'e! Revenue222222222222222222222222222222222222222222222222222

36:;;; 36:;;;

BRIEF E?ERCISE 18@3; T9e initition $ee * &e viee/ ! !e#te e#$o#nce o&'igtion &ecu!e it #ovi/e!  #ene' otion t  'oe# #ice t9n no#''* c9#ge/2 A!  #e!u't: B'ueBo% i! #ovi/ing  /i!counte/ #ice in t9e !u&!euent *e#!2 T9i! !9ou'/ &e #e$'ecte/ in t9e #evenue #ecognie/ in '' $ou# e#io/!2 In t9i! !itution: in t9e tot' t#n!ction #ice i! 38; ((6 ? 13) ? 4 Q 1;;)2 In t9e $i#!t *e#: B'ueBo% ou'/ #eo#t #evenue o$ ; (38;  5)2 T9e initition $ee i! ''octe/ ove# t9e enti#e $ou# *e# e#io/2

18-22




BRIEF E?ERCISE 18@3; (continue/) Anot9e# #oc9 i! to !!ue t9t t9e initition $ee i!  !e#te e#$o#nce o&'igtion &ecu!e it #ovi/e!  #ene' otion t  'oe# #ice t9n no#''* c9#ge/2 A!  #e!u't t9e initition $ee ou'/ &e ''octe/ to *e#! to t9#oug9 $ou#: un'e!! $o#$eite/ e#'ie#2 = BRIEF E?ERCISE 18@31 Con!t#uction in P#oce!!2222222222222222222222222222222222222222222 Mte#i'!: C!9: P*&'e!222222222222222222222222222222222

1:;;:;;;

Account! Receiv&'e222222222222222222222222222222222222222222222222 Bi''ing! on Con!t#uction in P#oce!!2222222222222222

1:3;;:;;;

C!9222222222222222222222222222222222222222222222222222222222222222222222222222 Account! Receiv&'e2222222222222222222222222222222222222222

<7;:;;;

Con!t#uction in P#oce!! 1:;;:;;;  (1:;;:;;; Q 4:4;;:;;;) ? 3:;;;:;;;22222222222222222222222222222222222222222222222222222222222222 Con!t#uction E%en!e!22222222222222222222222222222222222222222222 Revenue $#o Long@Te# Cont#ct! (:;;;:;;; ? 45)222222222222222222222222222222222222222222

1:;;:;;; 1:3;;:;;; <7;:;;;

78;:;;; 1:;;:;;; 3:48;:;;;

= BRIEF E?ERCISE 18@33 Cu##ent A!!et! Account! #eceiv&'e22222222222222222222222222222222222222222 Invento#ie! Con!t#uction in #oce!!222222222222222222222222222 Le!!> Bi''ing!22222222222222222222222222222222222222222222 Co!t! in e%ce!! o$ &i''ing!222222222222222222222222222

35;:;;; 1:16:;;; 1:;;;:;;; 16:;;;

= BRIEF E?ERCISE 18@34 () Con!t#uction E%en!e!222222222222222222222222222222222222 Con!t#uction in P#oce!!222222222222222222222222222 Revenue $#o Long@Te# Cont#ct!22222222



38:;;; 3;:;;;= 368:;;;


18-23

BRIEF E?ERCISE 18@34 (continue/) (&) Lo!! $#o Long@Te# Cont#ct!2222222222222222222222 Con!t#uction in P#oce!!222222222222222222222222222

3;:;;;= 3;:;;;

=53;:;;; J (38:;;; Q 173:;;;)

= BRIEF E?ERCISE 18@35 A#i' 1: 3;16 C!9222222222222222222222222222222222222222222222222222222222222222222222222222 Note! Receiv&'e (6:;;; J 36:;;;)22222222222222222222 .i!count on Note! Receiv&'e222222222222222222222222 ne#ne/ Se#vice Revenue (t#ining)2222222222222 ne#ne/ Se#vice Revenue ($#nc9i!e) (36:;;; Q 51:5;3 J 3:;;;)22222222222222222222222222

36:;;; 6;:;;; 8:6<8 3:;;; 75:5;3

+u'* 1: 3;16 ne#ne/ Se#vice Revenue (t#ining)222222222222222222222 ne#ne/ Se#vice Revenue ($#nc9i!e)222222222222222222 F#nc9i!e Revenue222222222222222222222222222222222222222222 Se#vice Revenue (t#ining)222222222222222222222222222222

18-24


3:;;; 75:5;3


75:5;3 3:;;;


SOLTIONS TO E?ERCISES E?ERCISE 18@1 (6J1; inute!) () T9e -ou#n' ent#* to #eco#/ t9e !'e n/ #e'te/ co!t o$ goo/! !o'/ #e ! $o''o!2 Account! Receiv&'e22222222222222222222222222222222222222 S'e! Revenue (K71;:;;; J K1;:;;;)222222

7;;:;;;

Co!t o$ Goo/! So'/22222222222222222222222222222222222222222 Invento#* 22222222222222222222222222222222222222222222222222

6;;:;;;

(&) C!9222222222222222222222222222222222222222222222222222222222222222222 S'e! Revenue22222222222222222222222222222222222222222 Account! Receiv&'e2222222222222222222222222222222

71;:;;;

7;;:;;;

6;;:;;;

1;:;;; 7;;:;;;

I$ *ent i! #eceive/ $te# 6 /*!: +uite# #ecognie! K7;;:;;; !'e! #evenue n/ K1;:;;; o$ //ition' #evenue: u!ing n ccount !uc9 ! S'e! .i!count! Fo#$eite/2

E?ERCISE 18@3 (6J1; inute!) () G#uo ou'/ #ecognie #evenue o$ 1:;;;:;;; t /e'ive#*2 (&) G#uo ou'/ #ecognie #evenue o$ 8;;:;;; t t9e oint o$ !'e2 (c) G#uo ou'/ #ecognie #evenue o$ 575:;;; t t9e oint o$ !'e2

E?ERCISE 18@4 (3;J36 inute!) () C!9222222222222222222222222222222222222222222222222222222222222222222 S'e! Revenue (<; ? R1;;)2222222222222222222

<:;;;

Co!t o$ Goo/! So'/22222222222222222222222222222222222222222 Invento#* (<; ? R65)222222222222222222222222222222

5:87;

(&) C!9222222222222222222222222222222222222222222222222222222222222222222 S'e! Revenue (1; ? R1;;)2222222222222222222

1:;;;



<:;;;

5:87;

1:;;; @7or =nstructor se $nlA

18-25

E?ERCISE 18@4 (continue/) Co!t o$ Goo/! So'/22222222222222222222222222222222222222222 Invento#* (1; ? R65)222222222222222222222222222222

65; 65;

In t9i! !itution: t9e cont#ct o/i$iction $o# t9e //ition' 56 #o/uct! i!: in e$$ect:  ne n/ !e#te cont#ct $o# $utu#e #o/uct! t9t /oe! not $$ect t9e ccounting $o# t9e #eviou!'* e%i!ting cont#ct2 (c) In t9i! c!e: &ecu!e t9e ne #ice /oe! not #e$'ect  !tn/'one !e''ing #ice: Ge#tne# ''octe!  o/i$ie/ t#n!ction #ice ('e!! t9e ount! ''octe/ to #o/uct! t#n!$e##e/ t o# &e$o#e t9e /te o$ t9e o/i$iction) to '' #eining #o/uct! to &e t#n!$e##e/2 n/e# t9e #o!ective #oc9: Ge#tne# /ete#ine! t9e t#n!ction #ice $o# !u&!euent !'e! (R<287) ! $o''o!2 Con!i/e#tion $o# #o/uct! not *et /e'ive#e/ un/e# o#igin' cont#ct (R1;; ? 7;) Con!i/e#tion $o# #o/uct! to &e /e'ive#e/ un/e# t9e cont#ct o/i$iction (R<6 ? 56) Tot' #eining #evenue Revenue e# #eining unit (R1; :36 1;6)  R<2872

R 7:;;; 5:36 R1;:36

A! in/icte/: t9e nue#to# inc'u/e! #o/uct! not *et t#n!$e##e/ un/e# o#igin' cont#ct (R1;; ? 7;) 'u! #o/uct! to &e t#n!$e##e/ un/e# t9e cont#ct o/i$iction (R<6 ? 56): 9ic9 i! /ivi/e/ &* t9e #eining 1;6 #o/uct!2 T9e -ou#n' ent#ie! to #eco#/ !u&!euent !'e! n/ #e'te/ co!t o$ goo/! !o'/ $o# 1; unit! i! ! $o''o!2

18-26

C!9 (1; ? R<287)2222222222222222222222222222222222222222 S'e! Revenue22222222222222222222222222222222222222222

<827;


65;2;;


<827;


65;2;;


E?ERCISE 18@5 (3;J36 inute!) ()

+nu#* 1: 3;16 C!9222222222222222222222222222222222222222222222222222222222222222222 ne#ne/ Se#vice Revenue22222222222222222222

1;:;;; 1;:;;;

.ece&e# 41: 3;16 ne#ne/ Se#vice Revenue2222222222222222222222222222 Se#vice Revenue22222222222222222222222222222222222222

1;:;;; 1;:;;;

+nu#* 1: 3;17 C!9222222222222222222222222222222222222222222222222222222222222222222 ne#ne/ Se#vice Revenue22222222222222222222

1;:;;; 1;:;;;

.ece&e# 41: 3;17 ne#ne/ Se#vice Revenue2222222222222222222222222222 Se#vice Revenue22222222222222222222222222222222222222 (&)

1;:;;; 1;:;;;

+nu#* 1: 3;1 C!9 (8:;;; Q 3;:;;;)2222222222222222222222222222222222 ne#ne/ Se#vice Revenue22222222222222222222

38:;;; 38:;;;

.ece&e# 41: 3;1 ne#ne/ Se#vice Revenue (38:;;;  5)222222 Se#vice Revenue22222222222222222222222222222222222222

:;;; :;;;

In t9i! c!e: t9e o/i$iction o$ t9e cont#ct /oe! not #e!u't in ne e#$o#nce o&'igtion2 A!  #e!u't: t9e #eining !e#vice #evenue i! #ecognie/ even'* ove# t9e #eining $ou# *e#!2




18-2!

E?ERCISE 18@5 (continue/) (c) Given t9e c9nge in !e#vice! in t9e e%ten/e/ cont#ct e#io/: t9e !e#vice! #e /i!tinct t9e o/i$iction !9ou'/ not &e con!i/e#e/ ! #t o$ t9e o#igin' cont#ct J T*'e# #ecognie! #evenue on t9e #eining !e#vice! t /i$$e#ent #te!2 T*'e# i'' #ecognie 7:77 (3;:;;;  4) e# *e# in t9e e%ten/e/ e#io/ (3;18J3;3;)2 Fo# 3;1: T*'e# De! t9e $o''oing ent#*2 +nu#* 1: 3;1 C!9 (8:;;; Q 3;:;;;)2222222222222222222222222222222222 ne#ne/ Se#vice Revenue22222222222222222222

38:;;; 38:;;;

.ece&e# 41: 3;1 ne#ne/ Se#vice Revenue2222222222222222222222222222 Se#vice Revenue22222222222222222222222222222222222222

8:;;; 8:;;;

E?ERCISE 18@6 (16J3; inute!) () Becu!e t9e ##ngeent on'* 9! to o!!i&'e outcoe! (#egu'to#* #ov' i! c9ieve/ o# not): Bi /ete#ine! t9e t#n!ction #ice &!e/ on t9e o!t 'iDe'* #oc92 T9u!: t9e &e!t e!u#e $o# t9e t#n!ction #ice i! 1;:;;;:;;;2 (&)

.ece&e# 3;: 3;16 No ent#*@neit9e# #t* 9! e#$o#e/2 +nu#* 16: 3;17 C!9222222222222222222222222222222222222222222222222222222222222222222 Licen!e Revenue2222222222222222222222222222222222222

18-28


1;:;;;:;;;


1;:;;;:;;;


E?ERCISE 18@7 (16J3; inute!) () A#on /ete#ine! t9t t9e t#n!ction #ice $o# t9e 1;; o'icie! i! 15:6;; (1;; ? 1;;) Q (1; ? 526 ? 1;;)2 (&)

+nu#*: 3;16

C!9 (1;; ? 1;;)22222222222222222222222222222222222222222222 Account! Receiv&'e222 Se#vice Revenue (Coi!!ion!)22222222222 22222222222222222222222222222222222222222222222222222222222222222222222215:6;;

1;:;;; 5:6;;

Becu!e on ve#ge: cu!toe#! #ene $o# 526 *e#!: A#on inc'u/e! t9t ount in it! e!tite $o# t9e t#n!ction #ice2 09en A#on !ti!$ie! it! e#$o#nce o&'igtion &* !e''ing t9e in!u#nce o'ic* to t9e cu!toe#: it #ecognie! #evenue o$ 156 on ec9 o'ic* &ecu!e it /ete#ine! t9t it i! #e!on&'* !!u#e/ to &e entit'e/ to t9t ount2 A#on conc'u/e! t9t it! !t e%e#ience i! #e/ictive: even t9oug9 t9e tot' ount o$ coi!!ion #eceive/ /een/! on t9e ction! o$  t9i#/ #t* (t9t i!: o'ic*9o'/e# &e9vio#)2 A! ci#cu!tnce! c9nge: A#on u/te! it! e!tite o$ t9e t#n!ction #ice n/ #ecognie! #evenue (o#  #e/uction o$ #evenue) $o# t9o!e c9nge! in ci#cu!tnce!2

E?ERCISE 18@ (16J3; inute!) () T9e -ou#n' ent#ie! to #eco#/ !'e! n/ #e'te/ co!t o$ goo/! !o'/ #e ! $o''o!2 12

+une 4: 3;16 Account! Receiv&'e22222222222222222222222222222222 Re$un/ Li&i'it*2222222222222222222222222222222 S'e! Revenue22222222222222222222222222222222

8:;;;

E!tite/ Invento#* Retu#n!222222222222222222 Co!t o$ Goo/! So'/222222222222222222222222222222222 Invento#*22222222222222222222222222222222222222222

67;= 6:;5;

8;; :3;;

6:7;;

= (6:7;;  8:;;;) ? 8;;




18-2"

E?ERCISE 18@ (continue/) T9e -ou#n' ent#ie! to #eco#/ t9e #etu#n i! ! $o''o!2 +une 6: 3;16 Re$un/ Li&i'it*222222222222222222222222222222222222222222 Account! Receiv&'e222222222222222222222222

4;;

Retu#ne/ Invento#* =2222222222222222222222222222222222 E!tite/ Invento#* Retu#n!22222222222

13;

4;;

13;

= Becu!e t9e!e goo/! e#e /ge/ n/ ig9t not &e !o'/ t  #o$it: t9e* 'iDe'* i'' &e !e#te/ $#o ot9e# invento#*2 A 'o!! * &e !u&!euent'* #ecognie/ i$ t9i! invento#* i! !o'/ o# /i!o!e/ o$ t n ount 'oe# t9n co!t2 T9e -ou#n' ent#* to #eco#/ /e'ive#* co!t i! ! $o''o!2 +une : 3;16 .e'ive#* E%en!e222222222222222222222222222222222222222 C!92222222222222222222222222222222222222222222222222222

35 35

T9e -ou#n' ent#* to #eco#/ *ent it9in t9e /i!count e#io/ i! ! $o''o!2 +une 13: 3;16 C!9222222222222222222222222222222222222222222222222222222222222 S'e! .i!count! (3 ? :;;=)22222222 Account! Receiv&'e (Ann Mount)2 2 =8:;;; J 4;; (&)

:;;

Augu!t 6: 3;16 C!9222222222222222222222222222222222222222222222222222222222222 Account! Receiv&'e (Ann Mount)2 2 S'e! .i!count! Fo#$eite/ (3 ? :;;)2222222222222222222222222222222222

18-3'

:657 165


:;;


:657 165


E?ERCISE 18@8 (16J3; inute!) ()

.ece&e# 41: 3;16 C!92222222222222222222222222222222222222222222222222222222222222222222 ne#ne/ Rent Revenue (3;16 !'i! > 4;; ? K8;;)22222222222222222222222222

35;:;;; 35;:;;;

.ece&e# 41: 3;17 C!92222222222222222222222222222222222222222222222222222222222222222222 ne#ne/ Rent Revenue (noncu##ent) 3;17 !'i! > 3;; ? K8;; ? (12;; J 2;6)222

163:;;;

C!92222222222222222222222222222222222222222222222222222222222222222222 ne#ne/ Rent Revenue (noncu##ent) 3;1 !'i! > 7; ? K8;; ? (12;; J 23;)22222

48:5;;

163:;;;

48:5;;

(&) T9e #in oe#to# !9ou'/ #ecognie t9t /vnce #ent'! gene#te/ K1<;:5;; (K163:;;; Q K48:5;;) o$ c!9 in e%c9nge $o# t9e #in! #oi!e to /e'ive# $utu#e !e#vice!2 In e$$ect: t9i! 9! #e/uce/ $utu#e c!9 $'o &* cce'e#ting *ent! $#o &ot one#!2 A'!o: t9e #ice o$ #ent' !e#vice! 9! e$$ective'* &een #e/uce/2 T9e cu##ent c!9 &onn /oe! not #e$'ect cu##ent #evenue2 T9e $utu#e co!t! o$ oe#tion u!t &e cove#e/: in #t: $#o t9i! cce'e#te/ c!9 in$'o2 On  #e!ent v'ue &!i!: t9e g#nting o$ t9e!e /i!count! !ee! i''@ /vi!e/ un'e!! inte#e!t #te! e#e to !D*#ocDet !o t9t inte#e!t #evenue ou'/ o$$!et t9e /i!count! #ovi/e/ o# &ecu!e co!t! $o# /ocD #ei#! i! e%ecte/ to inc#e!e !igni$icnt'*2

E?ERCISE 18@< (36J4; inute!) ()

+nu#* 3: 3;16 C!9222222222222222222222222222222222222222222222222222222222222222222 ne#ne/ S'e! Revenue 2222222222222222222222222

16;:;;; 16;:;;;

(To #eco#/ u$#ont *ent $o# !'e! o$ #o/uct! A n/ B)




18-31

E?ERCISE 18@< (continue/) .ece&e# 41: 3;16 Inte#e!t E%en!e (R16;:;;; ? 7)222222222222222 Inte#e!t P*&'e22222222222222222222222222222222222222222

<:;;; <:;;;

(To #eco#/ inte#e!t on t9e cont#ct 'i&i'it*) (&)

.ece&e# 41: 3;17 Inte#e!t E%en!e (R16;:;;; Q R<:;;; ? 7)2222222222222222222222 Inte#e!t P*&'e22222222222222222222222222222222222222222

<:65; <:65;

(To #eco#/ inte#e!t on t9e cont#ct 'i&i'it*) (c)

+nu#* 3: 3;1 ne#ne/ S'e! Revenue22222222222222222222222222222222 Inte#e!t P*&'e (R<:;;; Q R<:65; ? 36) S'e! Revenue............................................

4:6;; 5:746 53:146

(To #eco#/ #evenue on t#n!$e# o$ #o/uct A) Note> Inte#e!t i'' continue to cc#ue on #o/uct B ove# t9e ne%t 4 *e#!2 E?ERCISE 18@1; (6J1; inute!) () T9e ent#* to #eco#/ t9e !'e n/ #e'te/ co!t o$ goo/! !o'/ i! ! $o''o!2 Account! Receiv&'e22222222222222222222222222222222222222 S'e! Revenue2222222222222222222222222222222222222222222 ne#ne/ Se#vice Revenue2222222222222222222222 (&)

51;:;;; 4;:;;; 5;:;;;

Fi#!t "u#te# S'e! #evenue22222222222222222222222222222222222222222222222222

4;:;;;

T9e #evenue $o# in!t''tion i'' &e #ecognie/ in t9e !econ/ u#te#2

18-32




E?ERCISE 18@11 (36J4; inute!) () T9e tot' #evenue o$ 1:;;;:;;; !9ou'/ &e ''octe/ to t9e to e#$o#nce o&'igtion! &!e/ on t9ei# #e'tive $i# v'ue!2 In t9i! c!e: t9e $i# v'ue o$ t9e euient !9ou'/ &e con!i/e#e/ 1:;;;:;;; n/ t9e $i# v'ue o$ t9e in!t''tion $ee i! 6;:;;;2 T9e tot' $i# v'ue to con!i/e# i! 1:;6;:;;; (1:;;;:;;; Q 6;:;;;)2 T9e ''oction i! ! $o''o!2 Euient (1:;;;:;;;  1:;6;:;;;) ? 1:;;;:;;;  <63:481 In!t''tion (6;:;;;  1:;6;:;;;) ? 1:;;;:;;;   5:71< (&) C#nD!9$t De! t9e $o''oing ent#ie!2 Sete&e# 4;: 3;16 C!9222222222222222222222222222222222222222222222222222222222222222222 Se#vice Revenue (In!t''tion)2222222222222222 S'e! Revenue (Euient)2222222222222222222

1:;;;:;;;


7;;:;;;

5:71< <63:481

7;;:;;;

T9e !'e o$ t9e euient !9ou'/ &e #ecognie/ once t9e in!t''tion i! co'ete/ on Sete&e# 4;: 3;16 n/ t9e in!t''tion $ee '!o !9ou'/ &e #ecognie/ &ecu!e t9e!e !e#vice! 9ve &een #ovi/e/2 A!  #ctic' e%e/ient: i$  con* 9! to o# o#e /i!tinct e#$o#nce o&'igtion!: it * &un/'e t9e!e e#$o#nce o&'igtion! i$ t9e* 9ve t9e !e #evenue #ecognition tte#n2 T9t i! t9e* #e #ecognie/ ie/ite'* o# t9e* #e #ecognie/ ove# tie u!ing t9e !e #evenue #ecognition tte#n2




18-33

E?ERCISE 18@13 (36J4; inute!) () T9e tot' #evenue o$ 1:;;;:;;; !9ou'/ &e ''octe/ to t9e to e#$o#nce o&'igtion! &!e/ on t9ei# #e'tive $i# v'ue!2 In t9i! c!e: t9e $i# v'ue o$ t9e euient !9ou'/ &e con!i/e#e/ 1:;;;:;;; n/ t9e $i# v'ue o$ t9e in!t''tion $ee: !!uing  co!t 'u! #oc9 i! 56:;;; (47:;;; Q 36 ? 47:;;;)2 T9e tot' $i# v'ue to con!i/e# i! 1:;56:;;; (1:;;;:;;; Q 56:;;;)2 T9e ''oction i! ! $o''o!2 Euient (1:;;;:;;;  1:;56:;;;) ? 1:;;;:;;;   <67:<48 In!t''tion (56:;;;  1:;56:;;;) ? 1:;;;:;;;   54:;73 C#nD!9$t De! t9e $o''oing ent#ie!2 Sete&e# 4;: 3;16 C!9222222222222222222222222222222222222222222222222222222222222222222 Se#vice Revenue (In!t''tion)2222222222222222 S'e! Revenue (Euient)2222222222222222222

1:;;;:;;;


7;;:;;;

54:;73 <67:<48

7;;:;;;

E?ERCISE 18@14 (1;J16 inute!) () T9e !e#te e#$o#nce o&'igtion! #e t9e oven: in!t''tion: n/ intennce !e#vice: !ince ec9 ite 9! !tn/'one v'ue to t9e cu!toe#2 (&) Oven In!t''tion Mintennce Tot'

K 8;;K1:;36 ? K1:;;;  K 8; K 6;=K1:;36 ? K1:;;;  K 5< K 16==K1:;36 ? K1:;;;  K 11 K1:;36

=K6;  K86; J K8;; ==K16  K<6 J K8;;

18-34




E?ERCISE 18@15 (6J1; inute!) ()

+nu#* 3: 3;16 Account! Receiv&'e22222222222222222222222222222222222222 Re$un/ Li&i'it* (1:6;;:;;; ? 3;)2222222 S'e! Revenue22222222222222222222222222222222222222222 E!tite/ Invento#* Retu#n!22222222222222222222222222 Co!t o$ Goo/! So'/22222222222222222222222222222222222222222 Invento#*222222222222222222222222222222222222222222222222222

1:6;;:;;; 4;;:;;; 1:3;;:;;; 17;:;;;= 75;:;;; 8;;:;;;

= (3; ? 8;;:;;;) (&)

M#c9 1: 3;16 Re$un/ Li&i'it*222222222222222222222222222222222222222222222222 Account! Receiv&'e2222222222222222222222222222222 Invento#*2222222222222222222222222222222222222222222222222222222222 E!tite/ Invento#* Retu#n!222222222222222222

1;;:;;; 1;;:;;; 64:444= 64:444

= (8;;:;;;  1:6;;:;;;) ? 1;;:;;; (c) I$ O#gnic G#ot9 i! un&'e to e!tite #etu#n!: it /e$e#! #ecognition o$ #evenue unti' t9e #etu#n e#io/ e%i#e! on M* 3: 3;162 E?ERCISE 18@16 (16J3; inute!) () //in cou'/ #ecognie #evenue t t9e oint o$ !'e &!e/ uon t9e tie o$ !9ient &ecu!e t9e &ooD! #e !o'/ $2o2&2 !9iing oint2 T9t i!: cont#o' 9! t#n!$e##e/ n/ it! e#$o#nce o&'igtion i! et2 Becu!e t9e #etu#n! cn &e e!tite/: #ecognition i! t oint o$ !'e (!9iing oint) it9  #etu#ne/ 'i&i'it* e!t&'i!9e/2 (&) B!e/ on t9e vi'&'e in$o#tion: t9e co##ect t#etent i! to #ecognie #evenue 9en t9e e#$o#nce o&'igtion i! !ti!$ie/ J in t9i! c!e t t9e tie o$ !9ient (t#n!$e# o$ tit'e)2 T9e t#n!ction #ice ount i! /-u!te/ $o# t9e e!tite/ #etu#n! $o# 9ic9  #e$un/ 'i&i'it* i! #eco#/e/2




18-35

E?ERCISE 18@16 (continue/) +u'* 1: 3;16 (c) Account! Receiv&'e22222222222222222222222222222222222222 Re$un/ Li&i'it* (K16:;;;:;;; ? 13)22222 S'e! Revenue (Te%t!)22222222222222222222222222222 E!tite/ Invento#* Retu#n! (K13:;;;:;;; ? 13)22222222222222222222222222222222222222 Co!t o$ Goo/! So'/22222222222222222222222222222222222222222 Invento#*222222222222222222222222222222222222222222222222222

16:;;;:;;; 1:8;;:;;; 14:3;;:;;; 1:55;:;;; 1;:67;:;;; 13:;;;:;;;

Octo&e# 4: 3;16 (/) Re$un/ Li&i'it* 22222222222222222222222222222222222222222222222 Account! Receiv&'e2222222222222222222222222222222

1:6;;:;;;


14:6;;:;;;

Invento#*2222222222222222222222222222222222222222222222222222222222 E!tite/ Invento#* Retu#n!222222222222222222

1:6;;:;;; 14:6;;:;;; 1:3;;:;;;= 1:3;;:;;;

= (K13:;;;:;;;  K16:;;;:;;;) ? K1:6;;:;;; E?ERCISE 18@17 (3;J36 inute!) ()

In t9i! c!e: /ue to t9e g#eeent to #eu#c9!e t9e euient: C#e# continue! to 9ve cont#o' o$ t9e !!et n/ t9e#e$o#e t9i! g#eeent i!  $inncing t#n!ction n/ not  !'e2 T9u! t9e !!et i! not #eove/ $#o t9e &ooD! o$ C#e#2 T9e ent#ie! to #eco#/ t9e $inncing #e ! $o''o!2 +u'* 1: 3;16 C!9222222222222222222222222222222222222222222222222222222222222222222 Li&i'it* to En*#t Con*2222222222222222222

(&)

5;:;;; 5;:;;;

.ece&e# 41: 3;16 Inte#e!t E%en!e2222222222222222222222222222222222222222222222 Li&i'it* to En*#t Con* (5;:;;; ? 7= ? 13)2222222222222222222222222222

1:3;; 1:3;;

(=) An inte#e!t #te o$ 7 i! iute/ $#o t9e g#eeent2 18-36




E?ERCISE 18@17 (continue/) (c)

+une 4;: 3;17 Inte#e!t E%en!e2222222222222222222222222222222222222222222222 Li&i'it* to En*#t Con* (5;:;;; ? 7 ? 13)22222222222222222222222222222

1:3;; 1:3;;

Li&i'it* to En*#t Con*222222222222222222222222222 C!9 (5;:;;; Q 1:3;; Q 1:3;;)22222222222

53:5;; 53:5;;

E?ERCISE 18@1 (1;J16 inute!) ()

M#c9 1: 3;16 I$ t9e !e''ing #ice o$ t9e ingot! ! 3;;:;;;: Ugt ou'/ #eco#/ t9e $o''oing ent#* 9en it #eceive! t9e con!i/e#tion $#o t9e cu!toe#> C!9222222222222222222222222222222222222222222222222222222222222222222 Li&i'it* to 0e#ne# Met' Con*22222222

3;;:;;; 3;;:;;;

(To #eco#/ #eu#c9!e g#eeent it9 0e#ne# Met' Con*) (&)

M* 1: 3;16 Inte#e!t E%en!e (3;;:;;; ? 3)222222222222222222 Li&i'it* to 0e#ne# Met' Con*2222222222222222 C!92222222222222222222222222222222222222222222222222222222222

5:;;; 3;;:;;; 3;5:;;;

(To #eco#/ *ent 'u! inte#e!t on $inncing) E?ERCISE 18@18 (1;J16 inute!) () T9i! t#n!ction i!  &i''@n/@9o'/ !itution2 .e'ive#* o$ t9e counte#! i! /e'*e/ t t9e &u*e#! #eue!t: &ut t9e &u*e# tDe! tit'e n/ ccet! &i''ing2 T9u!: t9e g#eeent u!t &e ev'ute/ to /ete#ine i$ #evenue cn &e #ecognie/ &e$o#e /e'ive#*2




18-3!

E?ERCISE 18@18 (continue/) (&) Revenue i! #eo#te/ t t9e tie tit'e !!e! i$ t9e $o''oing con/ition! #e et> (1) T9e #e!on $o# t9e &i''@n/@9o'/ ##ngeent u!t &e !u&!tntive2 (3) T9e #o/uct u!t &e i/enti$ie/ !e#te'* ! &e'onging to t9e cu!toe#2 (4) T9e #o/uct cu##ent'* u!t &e #e/* $o# 9*!ic' t#n!$e# to t9e cu!toe#: n/ (5) T9e !e''e# cnnot 9ve t9e &i'it* to u!e t9e #o/uct o# to /i#ect it to not9e# cu!toe#2 (c) C!9222222222222222222222222222222222222222222222222222222222222222222 Account! Receiv&'e22222222222222222222222222222222222222 S'e! Revenue22222222222222222222222222222222222222222

4;;:;;; 1:;;:;;; 3:;;;:;;;

E?ERCISE 18@1< (16J3; inute!) () Invento#i&'e co!t!> 8; unit! !9ie/ t co!t o$ K6;; ec92222222222222 F#eig9t2222222222222222222222222222222222222222222222222222222222222222 Tot' invento#i&'e co!t22222222222222222222222222222

K5;:;;; 85; K5;:85;

5; unit! on 9n/ (5;8; ? K5;:85;)222222222222222222

K3;:53;

(&) Couttion o$ con!ignent #o$it> Con!ignent !'e! (5; ? K6;)222222222222222222222222 Co!t o$ unit! !o'/ (5;8; ? K5;:85;)2222222222222222 Coi!!ion c9#ge/ &* con!ignee (7 ? K4;:;;;) 22222222222222222222222222222222222222222222222 A/ve#ti!ing co!t222222222222222222222222222222222222222222222222 In!t''tion co!t!22222222222222222222222222222222222222222222222 P#o$it on con!ignent !'e!222222222222222222222222222222222222 (c) Reittnce o$ con!ignee> Con!ignent !'e!222222222222222222222222222222222222222222222222222 Le!!> Coi!!ion!2222222222222222222222222222222222222222222222222 A/ve#ti!ing22222222222222222222222222222222222222222222222222222 In!t''tion222222222222222222222222222222222222222222222222222222 Reittnce $#o con!ignee2222222222222222222222222222222222222

18-38


K4;:;;; (3;:53;) (1:8;;) (3;;) (43;) K :37; K4;:;;; K1:8;; 3;; 43;


3:43; K3:78;


E?ERCISE 18@3; (6J1; inute!) () C!9 (R58:8;; Q R1:3;;)2222222222222222222222222222222222222222 0##nt* E%en!e222222222222222222222222222222222222222222222222222222 0##nt* Li&i'it*222222222222222222222222222222222222222222222222 S'e! Revenue22222222222222222222222222222222222222222222222222222

6;:;;; 1:3;; 1:3;; 6;:;;;

(&) G#n/o !9ou'/ #ecognie R5;; o$ ##nt* #evenue in 3;1 n/ 3;182 C!9 (R58:8;; Q R1:3;; Q R8;;)22222222222222222222222222 0##nt* E%en!e222222222222222222222222222222222222222222222222222222 0##nt* Li&i'it*222222222222222222222222222222222222222222222222 S'e! Revenue22222222222222222222222222222222222222222222222222222 ne#ne/ Se#vice Revenue (0##nt*)2222222222222

6;:8;; 1:3;; 1:3;; 6;:;;; 8;;

E?ERCISE 18@31 (16J3; inute!) ()

Octo&e# 1: 3;16 C!9 (o# Account! Receiv&'e)222222222222222222222222222222222 0##nt* E%en!e222222222222222222222222222222222222222222222222222222 ne#ne/ Se#vice Revenue (!!u#nce@t*e ##nt*)222222222222222222222222222222 ne#ne/ Se#vice Revenue (!e#vice@t*e ##nt*)222222222222222222222222222222222222 S'e! Revenue22222222222222222222222222222222222222222222222222222

4:7;; 3;; 3;; 5;; 4:3;;

(To #eco#/ !'e! #evenue n/ cont#ct 'i&i'itie! #e'te/ to ##ntie!2) Co!t o$ Goo/! So'/2222222222222222222222222222222222222222222222222222 Invento#*22222222222222222222222222222222222222222222222222222222222222

1:55; 1:55;

(To #eco#/ invento#* !o'/ n/ #ecognie co!t o$ !'e!)2 (&)

Ce'ic #e/uce! t9e ##nt* 'i&i'it* (une#ne/ !e#vice #evenue) !!ocite/ it9 t9e !!u#nce@t*e ##nt* ! ctu' ##nt* co!t! #e incu##e/ /u#ing t9e $i#!t <; /*! $te# t9e cu!toe# #eceive! t9e coute#2 Ce'ic #ecognie! t9e ##nt* 'i&i'it* !!ocite/ it9 t9e !e#vice@t*e ##nt* ! #evenue /u#ing t9e cont#ct ##nt* e#io/ n/ #ecognie! t9e co!t! !!ocite/ it9 #ovi/ing t9e !e#vice@t*e ##nt* ! t9e* #e incu##e/2




18-3"

E?ERCISE 18@33 (1;J16 inute!) ()

No ent#* J neit9e# #t* 9! e#$o#e/ on t9e cont#ct on +nu#* 1: 3;162

(&)

T9e ent#ie! to #eco#/ t9e !'e n/ #e'te/ co!t o$ goo/! !o'/ o$ t9e i#ing &!e i! ! $o''o!2 Fe&#u#* 6: 3;16

(c)

Cont#ct A!!et222222222222222222222222222222222222222222222222222222222222 S'e! Revenue22222222222222222222222222222222222222222222222222222

1 ,3;;


;;

1:3;;

;;

T9e ent#ie! to #eco#/ t9e !'e n/ #e'te/ co!t o$ goo/! !o'/ o$ t9e !9e'ving unit i! ! $o''o!2 Fe&#u#* 36: 3;16 C!922222222222222222222222222222222222222222222222222222222222222222222222222222 Cont#ct A!!et22222222222222222222222222222222222222222222222222222 S'e! Revenue22222222222222222222222222222222222222222222222222222

4:;;;


43;

1:3;; 1:8;;

43;

E?ERCISE 18@34 (1;J16 inute!) ()

M* 1: 3;16 No ent#* J neit9e# #t* 9! e#$o#e/ on M* 1: 3;162

(&) M* 16: 3;16 C!922222222222222222222222222222222222222222222222222222222222222222222222222222 ne#ne/ S'e! Revenue22222222222222222222222222222222222

18-4'



<;; <;;


E?ERCISE 18@34 (continue/) (c) M* 41: 3;16 ne#ne/ S'e! Revenue2222222222222222222222222222222222222222222 S'e! Revenue22222222222222222222222222222222222222222222222222222

<;;


66

<;;

66

E?ERCISE 18@35 (16J3; inute!) () T9e 3:;;; coi!!ion co!t! #e'te/ to o&tining t9e cont#ct #e #ecognie/ ! n !!et2 T9e /e!ign !e#vice! (4:;;;): cont#o''e#! (7:;;;): te!ting n/ in!ection $ee! (3:;;;) !9ou'/ &e cit'ie/ ! e'': ! t9e* #e !eci$ic to t9e cont#ct2 T9e 3:;;; co!t $o# t9e #ecetc'e! n/ 'o/ing euient e# to &e in/een/ent o$ t9e cont#ct: ! Re% i'' #etin t9e!e n/ 'iDe'* u!e t9e in ot9e# #o-ect!2 (&) Conie! on'* cit'ie co!t! t9t #e /i#ect: inc#eent': n/ #ecove#&'e (!!uing t9t t9e cont#ct e#io/ i! o#e t9n one *e#2 Gene#' n/ /ini!t#tive co!t! (un'e!! t9o!e co!t! #e e%'icit'* c9#ge&'e to t9e cu!toe# un/e# t9e cont#ct) n/ !te/ te#i'! n/ '&o# #e not e'igi&'e $o# cit'ition n/ !9ou'/ &e e%en!e/ ! incu##e/2




18-41

E?ERCISE 18@36 (1;J16 inute!) () I$ t9e cont#ct i! $o# 1 *e# o# 'e!!: Re% cn u!e t9e #ctic' e%e/ient n/ #ecognie t9e inc#eent' co!t! o$ o&tining  cont#ct ! n e%en!e 9en incu##e/2 (&) T9e co''ecti&i'it* o$ t9e cont#ct *ent! i'' not $$ect t9e ount o$ #evenue #ecognie/2 T9t i!: t9e ount #ecognie/ i! not /-u!te/ $o# cu!toe# c#e/it #i!D2 Rt9e#: Re% !9ou'/ #eo#t t9e #evenue g#o!! n/ t9en #e!ent n ''once $o# n* ii#ent /ue to &/ /e&t! (#ecognie/ initi''* n/ !u&!euent'* in cco#/nce it9 t9e #e!ective &/ /e&t gui/nce) #oinent'* ! n e%en!e in t9e incoe !tteent2 I$ t9e#e i! !igni$icnt /ou&t t cont#ct incetion &out co''ecti&i'it*: t9i! * in/icte t9t t9e #tie! to t9e cont#ct #e not coitte/ to e#$o# t9ei# #e!ective o&'igtion! to t9e cont#ct (i2e2: e%i!tence o$  cont#ct * not &e et)2 No #evenue i! #ecognie/ unti' t9e i!!ue o$ !igni$icnt /ou&t i! #e!o've/2

= E?ERCISE 18@37 (3;J36 inute!) () G#o!! #o$it #ecognie/ in> 3;16 Cont#ct #ice Co!t!> Co!t! to /te E!tite/ co!t! to co'ete Tot' e!tite/ #o$it Pe#centge co'ete/ to /te Tot' g#o!! #o$it #ecognie/ Le!!> G#o!! #o$it #ecognie/ in #eviou! *e#! G#o!! #o$it #ecognie/ in cu##ent *e# =

18-42

3;17

K1:7;;:;;; K5;;:;;; 7;;:;;;

3;1

K1:7;;:;;; K836:;;;

1:;;;:;;; 7;;:;;; ?

5;=

36:;;;

K1:7;;:;;; K1:;;:;;;

1:1;;:;;; 6;;:;;; ?

;

6==

1:;;:;;; 64;:;;; ?

1;;

35;:;;;

46:;;;

64;:;;;

;

35;:;;;

46:;;;

K 35;:;;;

K 146:;;;

K 166:;;;

=K5;;:;;;  K1:;;;:;;;


==K836:;;;  K1:1;;:;;;



E?ERCISE 18@37 (continue/) (&) Con!t#uction in P#oce!! (K836:;;; J K5;;:;;;)2222 Mte#i'!: C!9: P*&'e!2222222222222222222222222222222

536:;;; 536:;;;

Account! Receiv&'e (K<;;:;;; J K4;;:;;;)2222222222 7;;:;;; Bi''ing! on Con!t#uction in P#oce!!22222222222222

7;;:;;;

C!9 (K81;:;;; J K3;:;;;)2222222222222222222222222222222222222 Account! Receiv&'e222222222222222222222222222222222222222

65;:;;;

65;:;;;

Con!t#uction E%en!e!2222222222222222222222222222222222222222222 536:;;; Con!t#uction in P#oce!!22222222222222222222222222222222222222222 146:;;; Revenue $#o Long@Te# Cont#ct!22222222222222

67;:;;;=

=K1:7;;:;;; ? (6 J 5;) (c) G#o!! #o$it #ecognie/ in> G#o!! #o$it

3;16 KJ;J

3;17 KJ;J

3;1 K64;:;;;=

=K1:7;;:;;; J K1:;;:;;;

= E?ERCISE 18@3 (1;J16 inute!) () Cont#ct &i''ing! to /te222222222222222222222222222222222222222222 Le!!> Account! #eceiv&'e 1341162222222222222222222222 Po#tion o$ cont#ct &i''ing! co''ecte/222222222222222222222 (&)

K71:6;; 18:;;; K54:6;;

K1<:6;;  4; K76:;;; (T9e #tio o$ g#o!! #o$it to #evenue #ecognie/ in 3;162) K1:;;;:;;; ? 24;  K4;;:;;; (T9e initi' e!tite/ tot' g#o!! #o$it &e$o#e t% on t9e cont#ct2)




18-43

= E?ERCISE 18@38 (1;J16 inute!) .OGHERTY INC2 Couttion o$ G#o!! P#o$it to &e Recognie/ on nco'ete/ Cont#ct Ye# En/e/ .ece&e# 41: 3;16 Tot' cont#ct #ice E!tite/ cont#ct co!t t co'etion (8;;:;;; Q 1:3;;:;;;)2222222222222222222222222222222222222222222222222 Fi%e/ $ee222222222222222222222222222222222222222222222222222222222222222222222222222222 Tot'22222222222222222222222222222222222222222222222222222222222222222222222222222 Tot' e!tite/ co!t22222222222222222222222222222222222222222222222222222222222 G#o!! #o$it222222222222222222222222222222222222222222222222222222222222222222222222222222222 Pe#centge o$ co'etion (8;;:;;;  3:;;;:;;;)222222222 G#o!! #o$it to &e #ecognie/ 22222222222222222222222222222222222222222222222222

3:;;;:;;; 56;:;;; 3:56;:;;; (3:;;;:;;;) 56;:;;; ? 5;  18;:;;;

E?ERCISE 18@3< (16J3; inute!) ()

3;16>

75;:;;; ? 3:3;;:;;;  88;:;;; 1:7;;:;;;

3;17> 3:3;;:;;; (cont#ct #ice) inu! 88;:;;; (#evenue #ecognie/ in 3;16)  1:43;:;;; (#evenue #ecognie/ in 3;17)2 (&) G#o!! #o$it in 3;17 i! 146:;;; (3:3;;:;;; J 3:;76:;;;=)2 =75;:;;; Q 1:536:;;; (c) !ing t9e e#centge@o$@co'etion et9o/: t9e $o''oing ent#ie! ou'/ &e /e>

18-44

Con!t#uction in P#oce!!22222222222222222222222222222222222222222 Mte#i'!: C!9: P*&'e!2222222222222222222222222222222

75;:;;;

Account! Receiv&'e2222222222222222222222222222222222222222222222 Bi''ing! on Con!t#uction in P#oce!!22222222222222

53;:;;;


46;:;;;

Con!t#uction in P#oce!!22222222222222222222222222222222222222222 Con!t#uction E%en!e!222222222222222222222222222222222222222222 Revenue $#o Long@Te# Cont#ct!

35;:;;;= 75;:;;;


75;:;;; 53;:;;; 46;:;;;



$#o ()2222222222222222222222222222222222222222222222222222222 E?ERCISE 18@3< (continue/)

88;:;;;

=3:3;;:;;; J (75;:;;; Q <7;:;;;) ? (75;:;;;  1:7;;:;;;) (75;:;;; Q <7;:;;;) (!ing t9e co!t@#ecove#* et9o/: '' t9e !e ent#ie! #e /e e%cet $o# t9e '!t ent#*2 No incoe i! #ecognie/ unti' t9e cont#ct i! co'ete/2)

= E?ERCISE 18@4; (16J36 inute!) () Couttion o$ G#o!! P#o$it to Be Recognie/ un/e# Co!t@Recove#* Met9o/2 No couttion nece!!#*2 No g#o!! #o$it to &e #ecognie/ #io# to co'etion o$ cont#ct2 Couttion o$ Bi''ing! on nco'ete/ Cont#ct in E%ce!! o$ Re'te/ Co!t! un/e# Co!t@Recove#* Met9o/2 Con!t#uction co!t! incu##e/ /u#ing t9e *e#222222222222222222 P#ti' &i''ing! on cont#ct (36 ? 7:;;;:;;;)222222222222222

 1:186:8;; (1:6;;:;;;)  (415:3;;)

(&) Cont#ct #ice222222222222222222222222222222222222222222222222

7:;;;:;;;

Co!t! to /te2222222222222222222222222222222222222222222222222 E!t co!t! to co'ete22222222222222222222222222222222222 Tot'22222222222222222222222222222222222222222222222222222222

1:186:8;; 5:3;5:3;;

E!t #o$it (7:;;;:;;; J 6:4<;:;;;)2222222222222  o$ co'etion22222222222222222222222222222222222222222222 G#o!! #o$it22222222222222222222222222222222222222222222

71;:;;; ? 33 =

6:4<;:;;;

 145:3;;

= (1:186:8;;  6:4<;:;;;)




18-45

=E?ERCISE 18@41 (3;J36 inute!) ()

M* 1: 3;16 C!922222222222222222222222222222222222222222222222222222222222222222222222222222 Note! Receiv&'e (;:;;; J 38:;;;)22222222222222222222222 .i!count on Note! Receiv&'e 53:;;; J (3258786= ? 15:;;;)222222222222222222222 ne#ne/ F#nc9i!e Revenue (38:;;; Q 53:;;; J :185)2222222222222222222222222222

38:;;; 53:;;; :185 73:817

+u'* 1: 3;16 ne#ne/ F#nc9i!e Revenue22222222222222222222222222222222222 F#nc9i!e Revenue 22222222222222222222222222222222222222222222 (&)

73:817 73:817

M* 1: 3;16 C!922222222222222222222222222222222222222222222222222222222222222222222222222222 Note! Receiv&'e22222222222222222222222222222222222222222222222222222222 .i!count on Note! Receiv&'e 53:;;; J (3258786= ? 15:;;;)222222222222222222222 Cont#ct Li&i'it* ($#nc9i!e) (38:;;; Q 45:817)2222222222222222222222222222222222222222222

38:;;; 53:;;; :185 73:817

.ece&e# 41: 3;16 ne#ne/ F#nc9i!e Revenue 2222222222222222222222222222222222 14:<6<== F#nc9i!e Revenue 22222222222222222222222222222222222222222222

14:<6<

== (73:817  4) ? 813 (c)

M* 1: 3;16 C!922222222222222222222222222222222222222222222222222222222222222222222222222222 Note! Receiv&'e22222222222222222222222222222222222222222222222222222222 .i!count on Note! Receiv&'e 53:;;; J (3258786= ? 15:;;;)222222222222222222222 ne#ne/ Se#vice Revenue (T#ining)22222222222222 ne#ne/ F#nc9i!e Revenue (36:;;; Q 53:;;; J :185 J 3:5;;)2222222222222222222222222222222

18-46


38:;;; 53:;;;


:185 3:5;; 7;:517


E?ERCISE 18@41 (continue/) +u'* 1: 3;16 ne#ne/ Se#vice Revenue (T#ining)2222222222222222222222 ne#ne/ F#nc9i!e Revenue22222222222222222222222222222222222 F#nc9i!e Revenue222222222222222222222222222222222222222222222 Se#vice Revenue (T#ining)22222222222222222222222222222222

1:3;;=== 7;:517 7;:517 1:3;;

=== 3:5;;  3 Sete&e# 1: 3;16 ne#ne/ Se#vice Revenue (T#ining)2222222222222222222222 Se#vice Revenue 222222222222222222222222222222222222222222222222

1:3;;= 1:3;;

(C'cu'tion! #oun/e/) =P#e!ent v'ue o$ o#/in#* nnuit* 4 *e#! t 1;2

=E?ERCISE 18@43 (16J3; inute!) ()

+nu#* 1: 3;16 C!922222222222222222222222222222222222222222222222222222222222222222222222222222 Note! Receiv&'e22222222222222222222222222222222222222222222222222222222 .i!count on Note! Receiv&'e222222222222222222222222222 ne#ne/ F#nc9i!e Revenue (K1;:;;; Q K3<:67)2222222222222222222222222222222222222222222

=.on *ent /e on 511622222222222222222222222222222222 K1;:;;;2;; P#e!ent v'ue o$ n o#/in#* nnuit* (K8:;;; ? 427<6<;)22222222222222222222222222222222222222222222 Tot' #evenue #eco#/e/ &* C&e'' n/ tot' cui!ition co!t #eco#/e/ &* Le!'e* Ben-in22222222222222222222222222222222222222222222222

1;:;;; 5;:;;; 1;:544 4<:67=

3<:6723;

K4<:6723;

A#i' 1: 3;16 ne#ne/ F#nc9i!e Revenue22222222222222222222222222222222222 Copri&+t : 2'14 o+n ile < Sons, =nc.


4<:67


18-4!

F#nc9i!e Revenue222222222222222222222222222222222222222222222 E?ERCISE 18@43 (continue/) (&)

4<:67

+nu#* 1: 3;16 C!922222222222222222222222222222222222222222222222222222222222222222222222222222 Note! Receiv&'e22222222222222222222222222222222222222222222222222222222 .i!count on Note! Receiv&'e222222222222222222222222222 ne#ne/ Se#vice Revenue (T#ining)22222222222222 ne#ne/ F#nc9i!e Revenue2222222222222222222222222222

1;:;;; 5;:;;; 1;:544 4:7;; 46:<7

A#i' 1: 3;16 ne#ne/ Se#vice Revenue (T#ining)2222222222222222222222 ne#ne/ F#nc9i!e Revenue22222222222222222222222222222222222 F#nc9i!e Revenue222222222222222222222222222222222222222222222 Se#vice Revenue (T#ining)22222222222222222222222222222222

4:7;; 46:<7 46:<7 4:7;;

.ece&e# 41: 3;16 ne#ne/ Se#vice Revenue (T#ining)2222222222222222222222 Se#vice Revenue2222222222222222222222222222222222222222222222222 (c)

3:;; 3:;;

+nu#* 1: 3;16 C!922222222222222222222222222222222222222222222222222222222222222222222222222222 Note! Receiv&'e22222222222222222222222222222222222222222222222222222222 .i!count on Note! Receiv&'e222222222222222222222222222 Cont#ct Li&i'it* ($#nc9i!e) (K1;:;;; Q K3<:67)2222222222222222222222222222222222222222222

1;:;;; 5;:;;;

=.on *ent /e on 511622222222222222222222222222222222 K1;:;;;2;; P#e!ent v'ue o$ n o#/in#* nnuit* (K8:;;; ? 427<6<;)22222222222222222222222222222222222222222222 Tot' #evenue #eco#/e/ &* C&e'' n/ tot' cui!ition co!t #eco#/e/ &* Le!'e* Ben-in22222222222222222222222222222222222222222222222

1;:544 4<:67=

3<:6723;

K4<:6723;

.ece&e# 41: 3;16 ne#ne/ F#nc9i!e Revenue22222222222222222222222222222222222 F#nc9i!e Revenue222222222222222222222222222222222222222222222 18-48



:<14 :<14 @7or =nstructor se $nlA

== (K4<:67  6)

TIME AN. PRPOSE OF PROBLEMS P#o&'e 18@1 @(ime 3'35 minutesA #urposeto provide t+e student it+ an opportunit to determine transaction price, allocate t+e transaction price to perormance o%li&ations, and account or upront ees. P#o&'e 18@3 @(ime 2'25 minutesA #urposeto provide t+e student it+ an opportunit to determine transaction price, allocate t+e transaction price to perormance o%li&ations, and account or a contract modiication. P#o&'e 18@4 @(ime 3'35 minutesA #urposeto provide t+e student it+ an opportunit to determine transaction price, allocate t+e transaction price to perormance o%li&ations, and account or discounts and time value. P#o&'e 18@5 @(ime 354' minutesA #urposeto provide t+e student it+ an opportunit to determine transaction price, allocate t+e transaction price to perormance o%li&ations, and account or discounts and time value. P#o&'e 18@6 @(ime 354' minutesA #urposeto provide t+e student it+ an opportunit to determine transaction price, allocate t+e transaction price to perormance o%li&ations, and account or returns and consi&nment sales. P#o&'e 18@7 @(ime 253' minutesA #urposeto provide t+e student it+ an opportunit to account or arrant and customer loalt pro&rams. P#o&'e 18@ @(ime 3'35 minutesA #urposeto provide t+e student it+ an understandin& o t+e criteria and applications utilied in t+e determination revenue reco&nition or a %onus point pro&ram. (+e student is reIuired to allocate t+e transaction price to t+e %onus points and sales revenue or t+e products and t+en prepare entries or %onus point redemptions. P#o&'e 18@8 @(ime 3'45 minutesA #urposet+e student deines and descri%es t+e point o sale and over-time reco&nition o revenue. (+en t+e student computes revenue to %e reco&nied in situations usin& a point o sale and over time reco&nition, +en t+e ri&+t o r eturn e9ists, consi&nments, and a service contracts. P#o&'e 18@< @(ime 3'35 minutesA #urposeto provide t+e student it+ an understandin& o and an opportunit to determine transaction price, allocate t+e transaction price to perormance o%li&ations, and account or time value, &it cards, and discounts. =P#o&'e 18@1; @(ime 3'4' minutesA #urposeto provide t+e student it+ an understandin& o %ot+ t+e percenta&e-o-completion and costrecover met+ods o accountin& or lon&-term construction contracts. (+e student is reIuired to compute t+e estimated &ross proit t+at ould %e reco&nied durin& eac+ ear o t+e construction period under eac+ o t+e to met+ods. =P#o&'e 18@11 @(ime 2'25 minutesA #urposeto provide t+e student it+ a lon&-term construction contract pro%lem t+at reIuires t+e reco&nition o a loss durin& an interim ear on a contract t+at is proita%le overall. (+is pro%lem reIuires




18-4"

application o %ot+ t+e percenta&e-o-completion met+od and t+e cost-recover met+od to an interim loss situation.

18-5'




=P#o&'e 18@13 @(ime 4'5' minutesA #urposeto provide t+e student it+ a lon&-term construction contract pro%lem t+at reIuires t+e reco&nition o a loss durin& an interim ear on an unproita%le contract overall. (+is pro%lem reIuires application o %ot+ t+e percenta&e-o-completion met+od and t+e cost-recover met+od to t+is unproita%le contract. =P#o&'e 18@14 @(ime 3545 minutesA #urposeto provide t+e student it+ an understandin& o t+e accountin& treatment accorded ranc+isin& operations. (+e student is reIuired to discuss t+e alternatives tpes o ranc+ise ees  initial ranc+ise ee and continuin& ranc+ise ees  and determine +en ees s+ould %e reco&nied, at a point in time or over time.




18-51

SOLTIONS TO PROBLEMS PROBLEM 18@1

() T9e tot' #evenue o$ K6;:;;; (1;; cont#ct! ? K6;;) !9ou'/ &e ''octe/ to t9e to e#$o#nce o&'igtion! &!e/ on t9ei# #e'tive $i# v'ue!2 In t9i! c!e: t9e $i# v'ue o$ ec9 t&'et i! K36; n/ t9e $i# v'ue o$ t9e inte#net !e#vice i! K3872 T9e tot' $i# v'ue to con!i/e# i! K647 (K36; Q K387) $o# ec9 cont#ct2 T9e ''oction $o# ec9 cont#ct i! ! $o''o!2 T&'et (K36;  K647) ? K6;;  K344 Inte#net !e#vice (K387  K647) ? K6;;  K37 T9e #e!ent v'ue o$ t9e $utu#e *ent! on t9e inte#net !e#vice (K:3;;= ? 3261 P,OA n4: i8)  K18:666 =K3 ? 1;; +nu#* 3: 3;16 C!9 (K1;:;;; Q K31:556=)222222222222222222222222222222222222222222 Note! Receiv&'e (K3 ? 4 ? 1;;)222222222222222222222222222222 .i!count on Note! Receiv&'e (K31:7;; J K18:666)2222222222222222222222222222222222222222222 ne#ne/ Se#vice Revenue (1;; ? K37)2222222222 S'e! Revenue (1;; ? K344)2222222222222222222222222222222

41:556 31:7;;

Co!t o$ Goo/! So'/ (K16 ? 1;;)22222222222222222222222222222 Invento#*22222222222222222222222222222222222222222222222222222222222222

1:6;;

4:;56 37:;; 34:4;;

1:6;;

=C!9 #eceive/ on 1;; cont#ct!> Tot' cont#ct #ice Le!! u$#ont *ent on t9e inte#net !e#vice Le!! t9e P, o$ t9e note #eceiv&'e

K6;:;;; 1;:;;; 18:666 K31:556

T9e !'e o$ t9e t&'et! (n/ g#o!! #o$it) !9ou'/ &e #ecognie/ once t9e t&'et! #e /e'ive#e/ on +nu#* 3: 3;162

18-52




PROBLEM 18@1 (Continue/) Ao#tition Sc9e/u'e $o# t9e Note! Receiv&'e .te +nu#* +nu#* +nu#* +nu#*

3: 3;16 3: 3;17 3: 3;1 3: 3;18

C!9 @ K:3;; K:3;; K:3;;

(&)

Inte#e!t Revenue Ao#tition @ @ K1:585 K6:17 1:;3 7:14 645 7:777

B'nce K18:666 13:84< 7:777 @;@

.ece&e# 41: 3;17 Inte#e!t Receiv&'e (K13:84< ? 8)222222222222222222222222222 Inte#e!t Revenue2222222222222222222222222222222222222222222222222

1:;3 1:;3

(To cc#ue inte#e!t on t9e note #eceiv&'e) ne#ne/ Se#vice Revenue (K37:;;  5)22222222222222222 Se#vice Revenue2222222222222222222222222222222222222222222222222

7:76 7:76

(To #eco#/ #evenue $o# Inte#net !e#vice #ovi/e/ in 3;17) (c)

.ece&e# 41: 3;1 Inte#e!t Receiv&'e (K7:777 ? 8)22222222222222222222222222222 Inte#e!t Revenue2222222222222222222222222222222222222222222222222

645 645

(To cc#ue inte#e!t on t9e note #eceiv&'e) ne#ne/ Se#vice Revenue (K37:;;  5)22222222222222222 Se#vice Revenue2222222222222222222222222222222222222222222222222

7:76 7:76

(To #eco#/ #evenue $o# inte#net !e#vice #ovi/e/ in 3;1) (/) 0it9out #e'i&'e /t it9 9ic9 to e!tite t9e !tn/'one !e''ing #ice o$ t9e Inte#net !e#vice T&'et Ti'o#! ''octe! K36; $o# ec9 cont#ct to #evenue on t9e t&'et!: it9 t9e #e!i/u' ount ''octe/ to t9e Inte#net !e#vice2




18-53

PROBLEM 18@1 (Continue/) T&'et Ti'o#! De! t9e $o''oing ent#ie!2 +nu#* 3: 3;16 C!9 (K1;:;;; Q K 31:556=)22222222222222222222222222222222222222222 Note! Receiv&'e (K:3;; ? 4)22222222222222222222222222222222222 .i!count on Note! Receiv&'e222222222222222222222222222 ne#ne/ Se#vice Revenue (Inte#net Se#vice) (K36; ? 1;;)222222222222222222222222 S'e! Revenue (Euient)2222222222222222222222222222222

41:556 31:7;;


1:6;;

4:;56 36:;;; 36:;;;

1:6;;

T9e !'e o$ t9e t&'et! (n/ g#o!! #o$it) !9ou'/ &e #ecognie/ once t9e t&'et! #e /e'ive#e/ on +nu#* 3: 3;162 T&'et Ti'o#! i'' #ecognie !e#vice #evenue o$ K7:36; (K36:;;;  5) in ec9 *e# o$ t9e 5@*e# cont#ct2

18-54




PROBLEM 18@3 ()

Since t9e !e#vice! in t9e e%ten/e/ e#io/ #e t9e !e ! t9o!e #ovi/e/ in t9e o#igin' cont#ct e#io/: t9e !e#vice! #e not /i!tinct t9e o/i$iction !9ou'/ &e con!i/e#e/ ! #t o$ t9e o#igin' cont#ct2 T&'et Ti'o#! De! t9e $o''oing ent#ie! in 3;1 #e'te/ to t9e 5; e%ten/e/ cont#ct!2 +nu#* 3: 3;1 C!9 (5; ? K13;)222222222222222222222222222222222222222222222222222222222 ne#ne/ Se#vice Revenue22222222222222222222222222222222

5:8;; 5:8;;

(To #eco#/ c!9 #eceive/ $o# 5; e%ten/e/ Inte#net !e#vice cont#ct!) .ece&e# 41: 3;1 ne#ne/ Se#vice Revenue222222222222222222222222222222222222222 Se#vice Revenue (K16:58;=  5)22222222222222222222222222

4:8;

Con!i/e#tion $o# !e#vice not *et /e'ive#e/ un/e# o#igin' cont#ct (K37 ? 5;) Con!i/e#tion $o# #o/uct! to &e /e'ive#e/ un/e# t9e cont#ct o/i$iction (K5; ? K13;) Tot' #eining #evenue Revenue e# #eining unit (K16:58; 5)  K4:8;2

4:8; K1;:78; 5:8;; K16:58;

(&) Bun/'e B contin! t9#ee /i$$e#ent e#$o#nce o&'igtion!> (1) t9e t&'et: (3) Inte#net !e#vice: n/ (4) t&'et !e#vice 'n2 T9e tot' #evenue o$ K13;:;;; (3;; cont#ct! ? K7;;) !9ou'/ &e ''octe/ to t9e t9#ee e#$o#nce o&'igtion! &!e/ on t9ei# #e'tive $i# v'ue!> T&'et K36; Inte#net !e#vice 387 T&'et !e#vice 'n 17; Tot' e!tite/ $i# v'ue K7<7




18-55

PROBLEM 18@3 (Continue/) T9e ''oction $o#  !ing'e cont#ct i! ! $o''o!2 T&'et Inte#net Se#vice T&'et !e#vice Tot' Revenue

K316 (K36;  K7<7) ? K7;; 35 (K387  K7<7) ? K7;; 148 (K17;  K7<7) ? K7;; K7;;

T&'et Ti'o#! De! t9e $o''oing ent#ie! $o# 3;; T&'et Bun/'e B2 T9e #e!ent v'ue o$ t9e $utu#e *ent! on t9e Inte#net !e#vice (K15:5;; (K3 ? 3;;) ? 3261) 4:11; +nu#* 3: 3;16 C!9 (K3;:;;; Q K73:8<;=)222222222222222222222222222222222222222222 Note! Receiv&'e (1;; ? 3 ? K3 ? 4)222222222222222222222 .i!count on Note! Receiv&'e222222222222222222222222222 ne#ne/ Se#vice Revenue (Inte#net Se#vice) (3;; ? K35)222222222222222222222222 ne#ne/ Se#vice Revenue (T&'et Se#vice) (3;; ? K148)222222222222222222222222222 S'e! Revenue (Euient) (3;; ? K316)222222222

83:8<; 54:3;;

Co!t o$ Goo/! So'/2222222222222222222222222222222222222222222222222222 Invento#* (3;; ? K16)2222222222222222222222222222222222222222

46:;;;

7:;<; 5<:5;; 3:7;; 54:;;;

46:;;;

= C!9 #eceive/ on 3;; cont#ct!> Tot' cont#ct #ice (3;; ? K7;;) K13;:;;; Le!! u$#ont *ent on t9e inte#net !e#vice 3;:;;; Le!! P, o$ t9e note #eceiv&'e 4:11; K 73:8<; T9e !'e o$ t9e t&'et! (n/ g#o!! #o$it) !9ou'/ &e #ecognie/ once t9e t&'et! #e /e'ive#e/ on +nu#* 3: 3;162 T9e une#ne/ !e#vice #evenue $o# Inte#net n/ t&'et !e#vice! i'' &e #ecognie/ even'* ove# t9e 5@*e# cont#ct2

18-56




PROBLEM 18@4

() T9e tot' #evenue o$ 8:;;; (8;; ? 1;) !9ou'/ &e ''octe/ to t9e to e#$o#nce o&'igtion! &!e/ on t9ei# #e'tive $i# v'ue!2 In t9i! c!e: t9e $i# v'ue o$ t9e g#i''! i! con!i/e#e/ :;;; (;; ? 1;) n/ t9e $i# v'ue o$ t9e in!t''tion $ee i! 1:6;; (16; ? 1;)2 T9e tot' $i# v'ue to con!i/e# i! t9e#e$o#e 8:6;; (:;;; Q 1:6;;)2 T9e ''oction i! ! $o''o!2 Euient (:;;;  8:6;;) ? 8:;;;  7:688 In!t''tion (1:6;;  8:6;;) ? 8:;;;  1:513 G#i'' M!te# De! t9e $o''oing ent#ie!2 A#i' 3;: 3;16 C!922222222222222222222222222222222222222222222222222222222222222222222222222222 ne#ne/ Se#vice Revenue (In!t''tion)222222222 ne#ne/ S'e! Revenue (Euient)2222222222222

8:;;; 1:513 7:688

M* 16: 3;16 ne#ne/ Se#vice Revenue (In!t''tion)22222222222222222 ne#ne/ S'e! Revenue (Euient)222222222222222222222 Se#vice Revenue (In!t''tion)222222222222222222222222222 S'e! Revenue (Euient)2222222222222222222222222222222 Co!t o$ Goo/! So'/2222222222222222222222222222222222222222222222222222 Invento#* (536 ? 1;)222222222222222222222222222222222222222222

1:513 7:688 1:513 7:688 5:36; 5:36;

Bot9 t9e !'e o$ t9e euient n/ t9e !e#vice #evenue #e #ecognie/ once t9e in!t''tion i! co'ete/ on M* 16: 3;162 (&)

A#i' 1: 3;16 C!922222222222222222222222222222222222222222222222222222222222222222222222222222 S'e! Revenue (3;; ? 38; ? <5)22222222222222222

63:75;

Co!t o$ Goo/! So'/ 222222222222222222222222222222222222222222222222222 Invento#* (38; ? 17;)2222222222222222222222222222222222222222

55:8;;



63:75;


55:8;;

18-5!

PROBLEM 18@4 (Continue/) In t9i! c!e: G#i'' M!te# !9ou'/ #e/uce #evenue #ecognie/ &* 4:47; 67:;;; (38; ? 3;;) J 63:75; &ecu!e it i! #o&&'e ('o!t ce#tin) t9t it i'' #ovi/e t9e /i!counte/ #ice ounting to 72 (c) (1)

Sete&e# 1: 3;16 Account! Receiv&'e 3;:;;; J (4 ? 3;:;;;)2222222222222222222222222222222 S'e! Revenue222222222222222222222222222222222222222222222 Co!t o$ Goo/! So'/222222222222222222222222222222222222222222222 Invento#* (66; ? 3;)2222222222222222222222222222222222

1<:5;; 1<:5;; 11:;;; 11:;;;

Sete&e# 36: 3;16 C!9222222222222222222222222222222222222222222222222222222222222222222222 Account! Receiv&'e2222222222222222222222222222222222 (3)

1<:5;; 1<:5;;

Sete&e# 1: 3;16 Account! Receiv&'e 3;:;;; J (4 ? 3;:;;;)2222222222222222222222222222222 S'e! Revenue222222222222222222222222222222222222222222222 Co!t o$ Goo/! So'/222222222222222222222222222222222222222222222 Invento#* (66; ? 3;)2222222222222222222222222222222222

1<:5;; 1<:5;; 11:;;; 11:;;;

Octo&e# 16: 3;16 C!9 (1:;;; ? 3;)2222222222222222222222222222222222222222222222 Account! Receiv&'e2222222222222222222222222222222222 S'e! .i!count! Fo#$eite/ (4 ? 3;:;;;)222222222222222222222222222222222222222222

18-58


3;:;;;


1<:5;; 7;;


PROBLEM 18@4 (Continue/) (/)

Octo&e# 1: 3;16 Note! Receiv&'e 22222222222222222222222222222222222222222222222222222222 S'e! Revenue (6:435 ? 26143  P, i1;: n4 )222222 .i!count on Note! Receiv&'e222222222222222222222222222

6:435


3:;;

5:;;; 1:435

3:;;

.ece&e# 41: 3;16 .i!count on Note! Receiv&'e2222222222222222222222222222222222 Inte#e!t Revenue (1; ? V ? 5:;;;)2222222222222222

1;; 1;;

G#i'' M!te# #eco#/! #evenue o$ 5:;;; on Octo&e# 1: 3;16: 9ic9 i! t9e v'ue o$ con!i/e#tion #eceive/: &!e/ on t9e #e!ent v'ue o$ t9e note2 A!  #ctic' e%e/ient: conie! #e not #eui#e/ to #e$'ect t9e tie v'ue o$ one* to /ete#ine t9e t#n!ction #ice i$ t9e tie e#io/ $o# *ent i! 'e!! t9n  *e#2




18-5"

PROBLEM 18@5 () T9e -ou#n' ent#* to #eco#/ t9e !'e n/ #e'te/ co!t o$ goo/! !o'/ i! ! $o''o! +une 1: 3;16 Account! Receiv&'e2222222222222222222222222222222222222222 Re$un/ Li&i'it* (5 ? ;:;;;)222222222222222 S'e! Revenue222222222222222222222222222222222222222222

;:;;;

Co!t o$ Goo/! So'/22222222222222222222222222222222222222222 E!tite/ Invento#* Retu#n! (5 ? 5;:;;;)2222222222222222222222222222222222222222222222 Invento#* (5;; ? 1;;)22222222222222222222222222222

48:5;;

(&) (1)

3:8;; 7:3;;

1:7;; 5;:;;;

M* 1: 3;16 C!9 (3; ? 4;; ? 1:8;;) 222222222222222222222

1;8:;;;

ne#ne/ S'e! Revenue222222222222222222 (3)

1;8:;;;

Augu!t 1: 3;16 ne#ne/ S'e! Revenue22222222222222222222222222 C!92222222222222222222222222222222222222222222222222222222222222 S'e! Revenue (1:8;; ? 4;;)22222222222

1;8:;;; 543:;;;

Co!t o$ Goo/! So'/222222222222222222222222222222222222 Invento#* (4;; ? 37; Q 36 Q 5;;)

38;:6;;

65;:;;;

38;:6;;

Note> Econo* cou'/ ccount $o# t9e in!t''tion n/ #o/uct !'e! ! !e#te e#$o#nce o&'igtion!2 Hoeve#: !  #ctic' e%e/ient: i$  con* 9! to o# o#e /i!tinct e#$o#nce o&'igtion!: it * &un/'e t9e!e e#$o#nce o&'igtion! i$ t9e* 9ve t9e !e #evenue #ecognition tte#n2 T9t i!: t9e* #e #ecognie/ ie/ite'* o# t9e* #e #ecognie/ ove# tie u!ing t9e !e #evenue #ecognition tte#n2

18-6'




PROBLEM 18@5 (Continue/) (c) T9e int#o/uction o$  &onu! *ent give! #i!e to  c9nge in t9e t#n!ction #ice $o# t9e #evenue ##ngeent: to inc'u/e n /-u!tent $o# ngeent! e!tite o$ t9e ount o$ con!i/e#tion to 9ic9 Econo* i'' &e entit'e/2 Given t9e in$o#tion vi'&'e:  #o&&i'it*@eig9te/ et9o/ cou'/ &e u!e/> 7; c9nce o$ 6<5:;;; (65;:;;; ? 121;)  467:5;; 5; c9nce o$ 65;:;;;  317:;;; 63:5;; T9u!: t9e tot' t#n!ction #ice i! 63:5;; &!e/ on t9e #o&&i'it*@ eig9te/ e!tite2 Note> 0it9 -u!t to o!!i&'e outcoe!: Econo* u!e! t9e Wo!t@ 'iDe'*@ountX #oc9: #e!u'ting in  t#n!ction #ice o$ 6<5:;;;2 M* 1: 3;16 C!9 (3; ? 65;:;;;)222222222222222222222222222222222222

1;8:;;;

ne#ne/ S'e! Revenue2222222222222222222222222

1;8:;;;

+u'* 1: 3;16 ne#ne/ S'e! Revenue22222222222222222222222222222222 C!9 (6<5:;;; J 1;8:;;;) 2222222222222222222222222222 S'e! Revenue222222222222222222222222222222222222222222

1;8:;;; 587:;;;

Co!t o$ Goo/! So'/22222222222222222222222222222222222222222 Invento#* (4;; ? 5;; Q 36 Q 37;)22222

38;:6;;

6<5:;;;

38;:6;;

(/) T9i! i!  &i''@n/@9o'/ ##ngeent2 It e#! t9t t9e c#ite#i $o# Eic to 9ve o&tine/ cont#o' o$ t9e 'ince &un/'e! 9ve &een et> () T9e #e!on $o# t9e &i''@n/@9o'/ ##ngeent u!t &e !u&!tntive2 (&) T9e #o/uct u!t &e i/enti$ie/ !e#te'* ! &e'onging to Eic Rent'!2 (c) T9e #o/uct cu##ent'* u!t &e #e/* $o# 9*!ic' t#n!$e# to Eic2 (/) Econo* cnnot 9ve t9e &i'it* to u!e t9e #o/uct o# to /i#ect it to not9e# cu!toe#2 Copri&+t : 2'14 o+n ile < Sons, =nc.



18-61

PROBLEM 18@5 (Continue/) Econo* De! t9e $o''oing ent#ie!2 Fe&#u#* 1: 3;16 C!9 (1; ? 5;; ? 1:8;;)222222222222222222222222222222

3:;;;

ne#ne/ S'e! Revenue2222222222222222222222222

3:;;;

A#i' 1: 3;16 ne#ne/ S'e! Revenue222222222222222222222222222222222 Account! Receiv&'e (3;:;;; J 3:;;;)222 S'e! Revenue222222222222222222222222222222222222222222

3:;;; 758:;;;

Co!t o$ Goo/! So'/22222222222222222222222222222222222222222 Invento#* (5;; ? <46)222222222222222222222222222222

45:;;;

3;:;;;

45:;;;

T9u!: Econo* 9! t#n!$e##e/ cont#o' to Eic Econo* 9!  #ig9t to *ent $o# t9e 'ince! n/ 'eg' tit'e 9! t#n!$e##e/2

18-62




PROBLEM 18@6

()

+nu#* 1: 3;16 Note! Receiv&'e (Mi''!)22222222222222222222222222222222222 Re$un/ Li&i'it* (6 ? 58:;;;)222222222222222 S'e! Revenue222222222222222222222222222222222222222222

58:;;;

Co!t o$ Goo/! So'/22222222222222222222222222222222222222222 E!tite/ Invento#* Retu#n! (5;= ? 8;; ? 6)222222222222222222222222222222222222222222 Invento#* (5; ? 8;;)22222222222222222222222222222222

4;:5;;

3:5;; 56:7;;

1:7;; 43:;;;

=(58:;;;  1:3;;) (&)

Augu!t 1;: 3;16 C!9 (17 ? 4:7;;=)2222222222222222222222222222222222222222222 S'e! Revenue222222222222222222222222222222222222222222

6:7;;

Co!t o$ Goo/! So'/22222222222222222222222222222222222222222 Invento#* (17 ? 3:;;;)22222222222222222222222222222

43:;;;

6:7;;

43:;;;

= Note> T9e#e i! no /-u!tent $o# t9e vo'ue /i!count: &ecu!e it i! not #o&&'e t9t t9e cu!toe# i'' #ec9 t9e &enc9#D2 (c) T9i! #evenue ##ngeent 9! 4 /i$$e#ent e#$o#nce o&'igtion!> (1) t9e !'e o$ t9e /#*e#!: (3) in!t''tion: n/ (4) t9e intennce 'n2 T9e tot' #evenue o$ 56:3;; !9ou'/ &e ''octe/ to t9e t9#ee e#$o#nce o&'igtion! &!e/ on t9ei# #e'tive fair values: .#*e#! (4 ? 15:;;;) In!t''tion (4 ? 1:;;;) Mintennce 'n Tot' e!tite/ $i# v'ue


53:;;; 4:;;; 1:3;; 57:3;;



18-63

PROBLEM 18@6 (Continue/) T9e ''oction $o#  !ing'e cont#ct i! ! $o''o!2 .#*e#! In!t''tion Mintennce 'n Tot' Revenue

51:;<1 (53:;;;  57:3;;) ? 56:3;; 3:<46 (4:;;;  57:3;;) ? 56:3;; 1:15 (1:3;;  57:3;;) ? 56:3;; 56:3;;

Ritt De! t9e $o''oing ent#ie!2 +une 3;: 3;16 C!9 (3; ? 56:3;;)222222222222222222222222222222222222222 <:;5; Account! Receiv&'e (56:3;; J <:;5;)2222222 47:17; ne#ne/ Se#vice Revenue (In!t''tion)2222222222222222222222222222222222222222222 ne#ne/ Se#vice Revenue (Mintennce P'n)22222222222222222222222222222222 1:15 ne#ne/ S'e! Revenue (.#*e#!)2222222222

3:<46

51:;<1

(To #eco#/ g#eeent to !e'' n/ in!t'' /#*e#! n/ intennce 'n) Note> Rt9e# t9n ne#ne/ S'e! Revenue:  Cont#ct Li&i'it* Account cou'/ &e u!e/2

Octo&e# 1: 3;16

18-64

C!9 (8; ? 56:3;;)22222222222222222222222222222222222222 Account! Receiv&'e2222222222222222222222222222222

47:17;

ne#ne/ Se#vice Revenue (In!t''tion)222222222 ne#ne/ S'e! Revenue (.#*e#!)22222222222222222 Se#vice Revenue (In!t''tion)2222222222222222 S'e! Revenue (.#*e#!)222222222222222222222222222

3:<46 51:;<1

Co!t o$ Goo/! So'/22222222222222222222222222222222222222222 Invento#* (4 ? 11:;;;)222222222222222222222222222

44:;;;


47:17;

3:<46 51:;<1


44:;;;


PROBLEM 18@6 (Continue/) .ece&e# 41: 3;16 ne#ne/ Se#vice Revenue (Se#vice P'n!)22222 Se#vice Revenue (Se#vice P'n!) (1:15 ? 447)2222222222222222222222222222222222222222

<8 <8

(/) Ent#ie! $o# Ritt A#i' 36: 3;16 No ent#* J Invento#* continue! to &e cont#o''e/ &* Ritt2 +une 4;: 3;16 C!9 (7; ? 1:3;;) J (1; ? 7; ? 1:3;;)2222 Con!ignent E%en!e 22222222222222222222222222222222222 S'e! Revenue222222222222222222222222222222222222222222

75:8;; :3;;

Co!t o$ Goo/! So'/ (7; ? 8;;)222222222222222222222 Invento#* 22222222222222222222222222222222222222222222222222

58:;;;

3:;;;

58:;;;

Ent#ie! $o# F# .eot A#i' 36: 3;16 No ent#* J Invento#* continue! to &e cont#o''e/ &* Ritt2 Su#* Ent#* $o# Con!ignent S'e! C!9222222222222222222222222222222222222222222222222222222222222222222 .ue to Ritt (Con!ignent)22222222222222222222222 ne#ne/ Se#vice Revenue (Con!ignent!)2222222222222222222222222222222222222

3:;;; 75:8;; :3;;

+une 4;: 3;16 .ue to Ritt222222222222222222222222222222222222222222222222222222222 ne#ne/ Se#vice Revenue (Con!ignent!)22222222222222222222222222222222222222222222 Se#vice Revenue (Con!ignent!)2222222222 C!922222222222222222222222222222222222222222222222222222222222 Copri&+t : 2'14 o+n ile < Sons, =nc.


75:8;; :3;; :3;; 75:8;; @7or =nstructor se $nlA

18-65

PROBLEM 18@7 () 0##nt* Pe#$o#nce O&'igtion! 12 32

To t#n!$e# ; !eci't* inc9e! to cu!toe#! it9  tot' t#n!ction #ice o$ H31:;;;2 To #ovi/e e%ten/e/ ##nt* !e#vice! $o# 3; inc9e! $te# t9e !!u#nce ##nt* e#io/ it9  v'ue o$ H8:;;; (3; ? H5;;) $o# 3 *e#!2

0it9 #e!ect to t9e &onu! oint! #og#: Hui 9!  e#$o#nce o&'igtion $o#> 12 32

.e'ive#* o$ t9e #o/uct! n/: Futu#e /e'ive#* o$ #o/uct! t9t cn &e u#c9!e/ &* cu!toe#! it9 &onu! oint! e#ne/2

(&) C!9222222222222222222222222222222222222222222222222222222222222222222 0##nt* E%en!e22222222222222222222222222222222222222222222 0##nt* Li&i'it*22222222222222222222222222222222222222 ne#ne/ 0##nt* Revenue (3; ? H5;;)22222222222222222222222222222222222222222 S'e! Revenue222222222222222222222222222222222222222222

3<:;;; 3:1;; 3:1;; 8:;;; 31:;;;

To #e/uce invento#* n/ #ecognie co!t o$ goo/! !o'/> Co!t o$ Goo/! So'/22222222222222222222222222222222222222222 Invento#*222222222222222222222222222222222222222222222222222

17:;;; 17:;;;

Hui #e/uce! t9e 0##nt* Li&i'it* ccount ove# t9e $i#!t to *e#! ! t9e ctu' ##nt* co!t! #e incu##e/2 T9e con* '!o #ecognie! #evenue #e'te/ to t9e !e#vice t*e ##nt* ove# t9e t9#ee *e# e#io/ t9t e%ten/! &e*on/ t9e !!u#nce ##nt* e#io/ (to *e#!)2 In o!t c!e!: t9e une#ne/ ##nt* #evenue i! #ecognie/ on  !t#ig9t 'ine &!i! n/ t9e co!t! !!ocite/ it9 t9e !e#vice t*e ##nt* #e e%en!e/ ! incu##e/2 (c) Becu!e t9e oint! #ovi/e  te#i' #ig9t to  cu!toe# t9t it ou'/ not #eceive it9out ente#ing into  cont#ct: t9e oint! #e  !e#te e#$o#nce o&'igtion2 Hui ''octe! t9e t#n!ction #ice to t9e #o/uct n/ t9e oint! on  #e'tive !tn/'one !e''ing #ice &!i! ! $o''o!2 18-66




PROBLEM 18@7 (Continue/) T9e !tn/'one !e''ing #ice> Pu#c9!e/ #o/uct!> E!tite/ oint! to &e #e/eee/ Tot' Fi# ,'ue

H1;;:;;; <:6;; H1;<:6;;

T9e ''oction i! ! $o''o!2 P#o/uct! (H1;;:;;;  H1;<:6;;) ? H1;;:;;;  H<1:435 In!t''tion (H<:6;;  H1;<:6;;) ? H1;;:;;;  H 8:77

To #eco#/ !'e! o$ #o/uct! !u&-ect to &onu! oint!> C!9222222222222222222222222222222222222222222222222222222222222222222 Li&i'it* to Bonu! Point Cu!toe#!22222222 S'e! Revenue222222222222222222222222222222222222222222

1;;:;;;

Co!t o$ Goo/! So'/ (1 J 56) ? H1;;:;;; Invento#*222222222222222222222222222222222222222222222222222

66:;;;

8:77 <1:435

66:;;;

A//ition' S'e! Revenue $#o &onu! oint #e/etion!: i$ 5:6;; oint! 9ve &een #e/eee/> (5:6;; oint!  <:6;; oint!) ? H8:77  H5:11;




18-6!

PROBLEM 18@

() T9e t#n!ction #ice i! ''octe/ to t9e #o/uct! n/ 'o*'t* oint!: ! $o''o!> T#n!ction P#ice

A''octe/

Aount!

Stn/'one Se''ing P#ice!

P#o/uce Pu#c9!e! K35;:;;; Lo*'t* Point! K4;;:;;; 7;:;;;

K4;;:;;; 6:;;;

K4;;:;;;

Pe#cent A''octe/ 8;

K4;;:;;;

3;

K46:;;; K4;;:;;;

(&)

+u'* 3: 3;16 C!9222222222222222222222222222222222222222222222222222222222222222222 ne#ne/ S'e! Revenue22222222222222 S'e! Revenue 222222222

4;;:;;;

Co!t o$ Goo/! So'/22222222222222222222222222222222222222222 Invento#*222222222222

11:;;;

7;:;;; 35;:;;; 11:;;;

(c) At +u'* 41: 3;16: t9e #evenue #ecognie/ !  #e!u't o$ t9e 'o*'t* oint! #e/eee/ i! K35:;;; (K7;:;;; ? 4;:;;;  6:;;;)2 Note> A!!uing t9e oint! e#e 'ie/ to c!9 u#c9!e! it9  !'e! v'ue o$ K6:;;; (co!t o$ K4<:;;;): M#t De! t9e $o''oing ent#ie! /u#ing +u'*2

18-68

C!9222222222222222222222222222222222222222222222222222222222222222222 ne#ne/ S'e! Revenue22222222222222222222222222222222 S'e! Revenue222222222222222222222222222222222222222222

61:;;; 35:;;;

Co!t o$ Goo/! So'/22222222222222222222222222222222222222222 Invento#* (K4;:;;; ? 124)22222222222222222222222222

4<:;;;


6:;;;


4<:;;;


PROBLEM 18@8 () .eMent #ecognie! #evenue 9en it /e'ive#! &ooD! to /i!t#i&uto#!: 9ic9 i! 9en it !ti!$ie! t9e e#$o#nce o&'igtion2 T9e t#n!ction #ice $o# t9e ##ngeent i! /-u!te/ $o# t9e e%ecte/ #etu#n!: un'e!! no #e'i&'e e!tite o$ #etu#n! cn &e /eve'oe/2 In t9t c!e t9e ount o$ #evenue #ecognie/ * &e con!t#ine/ to ount! not !u&-ect to #etu#n! J unti' t9e #etu#n! #e Dnon2 AnDie' #ecognie! #evenue 9en '# !*!te! #e /e'ive#e/ to cu!toe#!: 9ic9 i! 9en it !ti!$ie! t9e e#$o#nce o&'igtion #e'te/ to #o/uct !'e!2 Coi!!ion! #e #eco#/e/ ! e%en!e! n/  ##nt* 'i&i'it* n/ e%en!e #e #eco#/e/ $o# t9e !!u#nce ##nt*2 .e #ecognie! #evenue ove# tie ! t9e !!et ngeent !e#vice! #e #ovi/e/2 T9e t#n!ction #ice * /-u!te/ $o# t9e e%ecte/ &onu! *ent2 (&) .eent Pu&'i!9ing .ivi!ion S'e!$i!c' 3;162222222222222222222222222222222222222222222222222222222222222222222 Le!!> Re$un/ 'i&i'it* (3;)22222222222222222222222222222222222222222222222222 Net !'e!#evenue to &e #ecognie/ in $i!c' 3;16222222222222

:;;;:;;; 1:5;;:;;; 6:7;;:;;;

A't9oug9 /i!t#i&uto#! cn #etu#n u to 4; e#cent o$ !'e!: #io# e%e#ience in/icte! t9t 3; e#cent o$ !'e! i! t9e e%ecte/ ve#ge ount o$ #etu#n!2 T9e co''ection o$ 3;15 !'e! 9! no ict on $i!c' 3;16 #evenue2 T9e 31 e#cent o$ #etu#n! on t9e initi' 6:6;;:;;; o$ 3;16 !'e! con$i#! t9t 3; e#cent o$ !'e! i'' #ovi/e  #e!on&'e e!tite2




18-6"

PROBLEM 18@8 (Continue/) AnDie' Secu#itie! .ivi!ion Revenue $o# $i!c' 3;16  6:3;;:;;;2 T9e #evenue i! t9e ount o$ goo/! ctu''* &i''e/ n/ !9ie/ 9en #evenue i! #ecognie/ t oint o$ !'e (te#! o$ F2O2B2 $cto#*)2 O#/e#! $o# goo/! /o not con!titute !'e!2 .on *ent! #e not !'e!2 T9e ctu' $#eig9t co!t! #e e%en!e! /e &* t9e !e''e# t9t t9e &u*e# i'' #ei&u#!e t t9e tie !9e *! $o# t9e goo/!2 Coi!!ion! n/ ##nt* #etu#n! #e '!o !e''ing e%en!e!2 Bot9 o$ t9e!e e%en!e! i'' &e cc#ue/ n/ i'' e# in t9e oe#ting e%en!e! !ection o$ t9e incoe !tteent2

.e A/vi!o#* .ivi!ion Revenue $o# 1!t "u#te# o$ $i!c' 3;16  7:;;; (3:5;;:;;; ? 236) .e i! not #e!on&'* !!u#e/ to &e entit'e/ to t9e incentive $ee unti' t9e en/ o$ t9e *e#2 A't9oug9 .e 9! e%e#ience it9 !ii'# cont#ct!: t9t e%e#ience i! not #e/ictive o$ t9e outcoe o$ t9e cu##ent cont#ct &ecu!e t9e ount o$ con!i/e#tion i! 9ig9'* !u!ceti&'e to vo'ti'it* in t9e #Det2 In //ition: t9e incentive $ee 9!  '#ge nu&e# n/ 9ig9 v#i&i'it* o$ o!!i&'e con!i/e#tion ount!2 T9e &onu! *ent !9ou'/ &e /e$e##e/ unti' t9e en/ o$ t9e *e#: ! it i! !u&-ect to !u&!tnti' vo'ti'it*2

18-!'




PROBLEM 18@< () S'e! it9 $inncing +nu#* 1: 3;16 Note! Receiv&'e222222222222222222222222222222222222222222222 .i!count on Note! Receiv&'e2222222222222222 S'e! Revenue (6:;;; ? 28<)222222222222222222

6:;;;


5:;;;

66; 5:56; 5:;;;

Tot' #evenue $o# Co'&e#t S'e! #evenue Inte#e!t #evenue (5:56; ? 7)

6:;;; (G#o!! #o$it  1:;;;) 37 6:37

(&) Gi$t C#/! M#c9 1: 3;16 C!9222222222222222222222222222222222222222222222222222222222222222222 ne#ne/ S'e! Revenue (3; ? 1;;)22222

3:;;; 3:;;;

M#c9 41: 3;16 ne#ne/ S'e! Revenue22222222222222222222222222222222 S'e! Revenue (1; ? 1;;)2222222222222222222222

1:;;;

Co!t o$ Goo/! So'/22222222222222222222222222222222222222222 Invento#* (1; ? 8;)2222222222222222222222222222222222

8;;

1:;;; 8;;

A#i' 4;: 3;16 ne#ne/ S'e! Revenue22222222222222222222222222222222 S'e! Revenue (7 ? 1;;)222222222222222222222222

7;;

Co!t o$ Goo/! So'/22222222222222222222222222222222222222222 Invento#* (7 ? 8;)222222222222222222222222222222222222

58;



7;; 58; @7or =nstructor se $nlA

18-!1

PROBLEM 18@< (Continue/) +une 4;: 3;16 ne#ne/ S'e! Revenue22222222222222222222222222222222 S'e! Revenue (1 3; ? 2;6 ? 1;;)22222222

1;;

Co!t o$ Goo/! So'/22222222222222222222222222222222222222222 Invento#* (1 3; ? 2;6 ? 8;)2222222222222222222

8;

1;;

8;

In //ition: n //ition' ent#* i! /e on +une 4;: 3;16 to #ecognie t9t 16 o$ t9e gi$t c#/! (4 c#/!) i'' not &e #e/eee/2 +une 4;: 3;16 ne#ne/ S'e! Revenue22222222222222222222222222222222 S'e! Revenue (4 ? 1;;)222222222222222222222222

4;; 4;;

T9e#e i! no co!t o$ goo/! !o'/ #e'te/ to t9e '!t 4 gi$t c#/! ! t9e* e#e not #e/eee/2 (c) Bun/'e S'e! Since t9e e# i! /e'ive#e/ 'te#: Co'&e#t 9! to e#$o#nce o&'igtion!: t9e #inte# n/ t9e !tn/ n/ t9e e#2 A! in/icte/: t9e !tn/'one #ice $o# t9e #inte#: !tn/: n/ e# i! 6:736: &ut t9e &un/'e/ #ice $o# '' t9#ee i! 6:1362 In t9i! c!e: t9e e#$o#nce o&'igtion #e'te/ to t9e #inte# n/ !tn/ i! 9e#e t9e /i!count 'ie!2 A!  #e!u't: t9e ''oction o$ t9e /i!count o$ 6;; !9ou'/ &e ''octe/ to t9e!e to ite!: ! $o''o!2 A''octe/ Aount! Pe# P#inte# n/ !tn/ (6:136 J 16) Tot'

18-!2


 16 5:<6; 6:136



PROBLEM 18@< (Continue/) T9e -ou#n' ent#ie! #e ! $o''o!> M#c9 1: 3;16 C!9222222222222222222222222222222222222222222222222222222222222222222 S'e! Revenue (1; ? 5:<6;)2222222222222222222 ne#ne/ S'e! Revenue (e#)22222222222

61:36;

Co!t o$ Goo/! So'/ 1; ? (5:;;; Q 3;;22222 Invento#*222222222222222222222222222222222222222222222222222

53:;;;

5<:6;; 1:6; 53:;;;

(To #eco#/ !'e o$ #inte# n/ !tn/) Sete&e# 1: 3;16 ne#ne/ S'e! Revenue (Pe#)222222222222222222 S'e! Revenue (1; ? 16)2222222222222222222222

1:6;

Co!t o$ Goo/! So'/22222222222222222222222222222222222222222 Invento#* (1; ? 146)22222222222222222222222222222222

1:46;

1:6; 1:46;

(To #eco#/ !'e o$ e#)




18-!3

=PROBLEM 18@1;

() Cont#ct #ice Le!! e!tite/ co!t> Co!t! to /te E!tite/ co!t to co'ete E!tite/ tot' co!t E!tite/ tot' g#o!! #o$it

3;16 <;;:;;;

3;17 <;;:;;;

3;1 <;;:;;;

3;:;;; 44;:;;;

56;:;;; 16;:;;;

71;:;;; 

7;;:;;; 4;;:;;;

7;;:;;; 4;;:;;;

71;:;;; 3<;:;;;

G#o!! #o$it #ecognie/ in 3;16>

3;:; ;; 7;;:; ;;

? 4;;:;;; 

3;17>

56;:; ;; 7;;:; ;;

? 4;;:;;; 

146:;;;

336:;;;

Le!! 3;16 #ecognie/ g#o!! #o$it G#o!! #o$it in 3;17

146:;;;  <;:;;;

3;1> Le!! 3;16J3;17 #ecognie/ g#o!! #o$it G#o!! #o$it in 3;1

336:;;;  76:;;;

(&) In 3;16 n/ 3;17: no g#o!! #o$it ou'/ &e #ecognie/2 Tot' &i''ing!222222222222222222222222222222222222222 Tot' co!t22222222222222222222222222222222222222222222 G#o!! #o$it #ecognie/ in 3;12222222

18-!4


<;;:;;; (71;:;;;) 3<;:;;;



= PROBLEM 18@11

()

Couttion o$ Recogni&'e P#o$itLo!! Pe#centge@o$@Co'etion Met9o/ 3;16 Co!t! to /te (134116)22222222222222222222222222222222222222222222 E!tite/ co!t! to co'ete22222222222222222222222222222222222 E!tite/ tot' co!t!2222222222222222222222222222222222222222

K3:88;:;;; 4:63;:;;; K7:5;;:;;;

Pe#cent co'ete (K3:88;:;;;  K7:5;;:;;;)22222222222

56

Revenue #ecognie/ (K8:5;;:;;; ? 56)2222222222222222 Co!t! incu##e/22222222222222222222222222222222222222222222222222222222222 P#o$it #ecognie/ in 3;16222222222222222222222222222222222222222222

K4:8;:;;; (3:88;:;;;) K <;;:;;;

3;17 Co!t! to /te (134117) (K3:88;:;;; Q K3:34;:;;;)22222222222222222222222222222222222222 E!tite/ co!t! to co'ete22222222222222222222222222222222222 E!tite/ tot' co!t!2222222222222222222222222222222222222222 Pe#cent co'ete (K6:11;:;;;  K:4;;:;;;)22222222222 Revenue #ecognie/ in 3;17 (K8:5;;:;;; ? ;) J K4:8;:;;;22222222222222222222222222 Co!t! incu##e/ in 3;172222222222222222222222222222222222222222222222 Lo!! #ecognie/ in 3;172222222222222222222222222222222222222222222

K6:11;:;;; 3:1<;:;;; K:4;;:;;; ; K3:1;;:;;; (3:34;:;;;) K (14;:;;;)

3;1 Tot' #evenue #ecognie/22222222222222222222222222222222222222222 Tot' co!t! incu##e/22222222222222222222222222222222222222222222222222 Tot' #o$it on cont#ct222222222222222222222222222222222222222222222 .e/uct #o$it #eviou!'* #ecognie/ (K<;;:;;; J K14;:;;;)22222222222222222222222222222222222222222222 P#o$it #ecognie/ in 3;1222222222222222222222222222222222222222222



K8:5;;:;;; (:4;;:;;;) 1:1;;:;;; ;:;;; K 44;:;;;


18-!5

PROBLEM 18@11 (Continue/) (&) No #o$it o# 'o!! #ecognie/ in 3;16 n/ 3;17 3;1 Cont#ct #ice222222222222222222222222222222222222222222222222222222222222 Co!t! incu##e/22222222222222222222222222222222222222222222222222222222222 P#o$it #ecognie/2222222222222222222222222222222222222222222222222222222

K8:5;;:;;; :4;;:;;;= K1:1;;:;;;

=K3:88;:;;; Q K3:34;:;;; Q K3:1<;:;;;

18-!6




= PROBLEM 18@13 ()

Couttion o$ Recogni&'e P#o$itLo!! Pe#centge@o$@Co'etion Pe#centge@o$@Co'etion Met9o/ 3;16 Co!t Co!t! ! to /te /te (13 (1341 411 16) 6)22 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 22 E!ti tite/ te/ co! co!t! t! to co' o'e ete222 e22222222 222222 222222 222222 222222 2222222 222222 2222 2222 2222 2222 2222 2222 2222 2222 22 E!ti tite te/ tot' ot' co!t! o!t!22 2222 2222 222222 2222222 222222 222222 222222 2222222 222222 22222222 222222 2222 2222 2222 2222 2222 2222

 4;;: 4;;:;; ;;; ; 1:3; 3;; ;:;; :;;; 1:6; 1:6;; ;:;; :;;;

Pe#cent co'ete (4;;:;;;  1:6;;:;;;)222 )22222 2222 2222 2222 2222 2222 2222 2222 22

3;

Reve venu nue e #e #ec cogni ogni e/ (1 1::<;; ;;:; :;;; ;; ? 3;)2 ;)222 2222222 2222222 222222 2222 2222 2222 2222 2222 Co!t Co!t! ! incu incu## ##e/ e/22 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 22 P#o$i #o$itt #ec ecog ogni nie e/ / in 3;16 1622 2222 222222 222222 2222222 222222 2222222 222222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 22

 48; 48;:;; :;;; (4;; (4;;:; :;;; ;;))  8;:;; :;;;

3;17 Co!t Co!t! ! to to /te /te (13 (1341 411 17) 7)22 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 22 E!ti tite/ te/ co!t! o!t! to co' o'e ete222 e22222222 222222 222222 222222 222222 2222222 222222 2222 2222 2222 2222 2222 2222 2222 2222 22 E!ti tite te/ tot' ot' co!t! o!t!22 2222 2222 222222 2222222 222222 222222 222222 2222222 222222 22222222 222222 2222 2222 2222 2222 2222 2222 Cont Cont# #ct ct #i #ice ce22 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 Tot' ot' 'o!! 'o!!22 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222

1:3; 1:3;;: ;:;; ;;; ; 8;; 8; ;:;; :;;; 3:;; ;;; ;:;; :;;; (1:< (1:<;; ;;:; :;;; ;;))  1; 1;;: ;:;; ;;; ;

Tot' ot' 'o!! 'o!!22 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 P'u! 'u! g#o! g#o!! ! #o$ #o$it it #e #ec cogni ogni e/ in 3;1 ;162 6222 2222 22222222 222222 2222 2222 2222 2222 2222 2222 2222 2222 22 Lo!! Lo!! #e #ec cogni ogni e/ in 3; 3;1 17222 722222 222222 222222 2222222 222222 222222 2222222 222222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222

 1;;: 1;;:;; ;;; ; 8;:;; :;;;  18 18; ;:;; :;;;




18-!!

PROBLEM 18@13 (Continue/) 3;1 Co!t! to /te (13411)22222222222222222222222222222222222222222 E!tite/ co!t! to co'ete222222222222222222222222222222222 Cont#ct #ice222222222222222222222222222222222222222222222222222222222 Tot' 'o!!22222222222222222222222222222222222222222222222222222222222222222

3:1;;:;;; ; 3:1;;:;;; 1:<;;:;;;  (3;;:;;; )

Tot' 'o!!22222222222222222222222222222222222222222222222222222222222222222 Le!!> Lo!! #ecognie/ in 3;172222222222222222222222222222 Lo!! #ecognie/ in 3;12222222222222222222222222222222222222222

 (3;;:;;;) 18;:;;;  (3;:;;;)

(&) (&) No #o$ #o$it it o# 'o!! 'o!! in 3; 3;16 16 3;17 Co!t to /te (134117)2222222222222222222222222222222222222222222 E!tite/ co!t! to co'ete/222222222222222222222222222222 E!tite/ tot' co!t!2222222222222222222222222222222222222 .e/u .e/uct ct cont cont# #ct ct #ic #ice2 e222 2222 2222 2222 2222 2222 2222 2222 2222 2222 22222 22222 22222 22222 22222 22222 22222 22222 22222 222 Lo!! #ecognie/ in 3;172222222222222222222222222222222222222222

1:3;;:;;; 8;;:;;; 3:;;;:;;; 1:<; 1:<;;: ;:;; ;;; ;  (1 (1;;:;;;)

3;1 Tot' co co!t! in incu##e/22222222222222222222222222222222222222222222222 Tot' #evenue #ecognie/22222222222222222222222222222222222222 Tot' 'o!! on cont#ct222222222222222222222222222222222222 .e/u .e/uct ct 'o!! 'o!! #e #eco cogn gni ie/ e/ in 3; 3;172 17222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 2222 22222 222 Lo!! #ecognie/ in 3;12222222222222222222222222222222222222222

18-!8



3:1;;:;;; 1:<;;:;;; (3;;:;;;) (1;; (1;;:; :;;; ;;))  (1;;:;;; )


= PROBLEM 18@14

() () A co on* n* #e #eco cogn gni ie! e! #e #eve venu nue e in t9e ccoun counti ting ng e#i e#io o/ 9en 9en  e#$o#nce o&'igtion i! !ti!$ie/t9e #evenue #ecognition #inci'e2 A De* e'eent o$ t9e #evenue #ecognition #inci'e i! t9t  con* #ecogn #ec ognie ie! ! #ev #evenu enue e to /eic /eictt t9e t#n!$ t#n!$e# e# o$ goo/! goo/! o# !e !e#vi #vice ce! ! to cu!toe#! in n ount t9t #e$'ect! t9e con!i/e#tion t9t it #eceive!: o# e%ect! to #eceive: in e%c9nge $o# t9o!e goo/! o# o # !e#vice!2 Conie! !ti!$* e#$o#nce o&'igtion! eit9e# t  oint in tie o# ove#  e#io/ o$ tie2 Conie! #ecognie #evenue ove#  e#io/ o$ tie i$ one o$ t9e $o''oing to c#ite#i i! et2 12

T9e cu!to cu!toe# e# cont# cont#o'! o'! t9e t9e  !! !!et et ! ! it ii! ! c#et c#ete/ e/ o# en9 en9nce nce/2 /2

32

T9e con* /oe! not 9ve n 'te#nt ntive u!e $o# t9e !!et c#ete/ o# en9nce/ n/ eit9e# (1) t9e cu!toe# #eceive! &ene$it! ! t9e con* e#$o#! n/ t9e#e$o#e t9e t!D ou'/ not nee/ to &e #e@e#$o#e/: o# (3) t9e con* 9!  #ig9t to *ent n/ t9i! #ig9t i! en$o#ce&'e2

In t9e c!e o$  $#nc9i!e: $ee! #e'te/ to #ig9t! to u!e t9e inte''ectu' #oe#t* gene#''* #e #ecognie/ t  oint in tie: u!u''* 9en t9e $#nc9i!e &egin! oe#tion2 T9t i! &ecu!e t t9t tie: t9e cu!toe# cont#o'! t9e #o/uct o# !e#vice 9en it 9! t9e &i'it* to /i#ect t9e u!e o$ n/ n/ o&t o&tin in !u&! !u&!t tnt nti i'' ''* * '' '' t9e t9e #e #e in inin ing g &ene &ene$i $it! t! $#o $#o t9e t9e $#n $#nc9 c9i! i!e e #ig9 #ig9t! t!22 Cont Cont#o #o'' '!o '!o inc' inc'u/ u/e! e! t9e t9e cu!t cu!to oe# e#! ! &i' &i'it it* * to #event ot9e# conie! $#o /i#ecting t9e u!e o$: o# #eceiving t9e &ene$it: $#o t9e !!et o# !e#vice2 T9e continuing $#nc9i!e $ee! #e #ecognie/ ove# tie: &ecu!e t9e* #e in e%c9 c9nge nge $o# #o/ #o/uc uctt! n/ !e#v #viice ce! ! t# #n! n!$e $e## ##e e/ to t9e $#nc9i!ee /u#ing t9e $#nc9i!e e#io/2




18-!"

PROBLEM 18@14 (Continue/) (&) +nu#* 6: 3;16 (1)

C!9222222222222222222222222222222222222222222222222222 Note! Receiv&'e222222222222222222222222222222 .i!count on Note! Receiv&'e (R1;;:;;; J R6:817=)2222222222 ne#ne/ F#nc9i!e Revenue2222

3;:;;; 1;;:;;; 35:185 <6:817

= P#e!ent v'ue o$ $utu#e *ent! (R3;:;;; ? 42<;<) +une 1: 3;16 (3)

ne#ne/ F#nc9i!e Revenue222222222 F#nc9i!e Revenue2222222222222222222222

3;:;;; 3;:;;;

(To #eco#/ #evenue $#o /e'ive#* o$ $#nc9i!e #ig9t!2) .ece&e# 41: 3;16 (4)

C!9 (R37;:;;; ? 3)22222222222222222222 F#nc9i!e Revenue2222222222222222222222

6:3;; 6:3;;

(To #ecognie continuing $#nc9i!e $ee!) ne#ne/ F#nc9i!e Revenue (R6:817  7; ? 7)222222222222222222222222 F#nc9i!e Revenue2222222222222222222222

:683 :683

(To #eco#/ ongoing $ee! $o# &#n/ intennce) .i!count on Note! Receiv&'e22222222 Inte#e!t Revenue (R6:817 ? 1; 13)2222222222222222

4:<1 4:<1

(c) In t9i! !itution Aigo! ou'/ t9en #eco#/ t9e enti#e $#nc9i!e $ee o$ R<6:817 9en t9e $#nc9i!e oen!2 T9t i!: $#nc9i!e #evenue i! #ecognie/ t  oint in tie2 18-8'




TIME AN. PRPOSE OF CONCEPTS FOR ANALYSIS CA 18@1 @(ime 2'3' minutesA #urposeto provide t+e student an opportunit to descri%e t+e 5-step revenue reco&nition model and e9plain t+e importance o air value measurement and t+e deinitions o asset and lia%ilities to application o t+e 5-step model. CA 18@3 @(ime 2'3' minutesA #urposeto provide t+e student an opportunit to descri%e t+e revenue reco&nition principle and t+e importance o control and t+e deinitions o assets and lia%ilities to application o t+e revenue reco&nition principle. CA 18@4 @(ime 253' minutesA #urposeto provide t+e student it+ an understandin& o t+e conceptual merits o reco&niin& revenue at t+e point o sale. (+e student is reIuired to e9plain and deend t+e reasons + t+e point o sale is usuall used as t+e %asis or t+e timin& o revenue reco&nition, plus descri%e t+e situations +ere revenue ould %e reco&nied over time. CA 18@5 @(ime 253' minutesA #urposeto provide t+e student it+ an understandin& o t+e conceptual actors underlin& t+e reco&nition o revenue. (+e student is reIuired to e9plain and Justi + revenue is oten reco&nied as earned at t+e time o sale, t+e situations +en it ould %e appropriate to reco&nie revenue over time. CA 18@6 @(ime 2'25 minutesA #urpose to provide t+e student it+ an understandin& o t+e conceptual actors underlin& t+e reco&nition o revenue. (+e student is reIuired to e9plain t+e actors t+at result in t+e constraint o or deerral o revenue reco&nition. CA 18@7 @(ime 3545 minutesA #urposeto provide t+e student an opportunit to e9plain +o a ma&aine pu%lis+er s+ould reco&nie su%scription revenue. (+e case is complicated % a 25L return rate and a premium oered to su%scri%ers. (+e eect on t+e current ratio must %e discussed. CA 18@ @(ime 253' minutesA #urposeto provide t+e student it+ an understandin& o t+e criteria and applications utilied in t+e determination revenue reco&nition or a %onus point pro&ram. (+e student is reIuired to discuss t+e actors to %e considered in determinin& +en revenue s+ould %e reco&nied, plus appl t+ese actors in discussin& t+e accountin& alternatives t+at s+ould %e considered or t+e reco&nition o revenues and related e9penses it+ re&ard to t+e inormation presented in t+e case. CA 18@8 @(ime 2'25 minutesA #urposeto provide t+e student an et+ical situation related to t+e reco&nition o revenue rom mem%ers+ip ees. =CA 18@< @(ime 2'25 minutesA #urposeto provide t+e student an opportunit to discuss t+e t+eoretical Justiication or use o t+e percenta&e-o-completion met+od. (+e student e9plains +o pro&ress %illin&s are accounted or and +o to determine t+e income reco&nied in t+e second ear o a contract % t+e percenta&eo-completion met+od. (+e student indicates t+e eect on earnin&s per s+are in t+e second ear o a our-ear contract rom usin& t+e percenta&e-o-completion met+od instead o t+e cost-recover met+od.




18-81

SOLTIONS TO CONCEPTS FOR ANALYSIS CA 18@1 @aA

(+e 5-step model is as ollos. 1.

=denti t+e contract it+ customers.  contract is an a&reement t+at creates enorcea%le ri&+ts or o%li&ations and @1A +as commercial su%stance, @2A +as %een approved and %ot+ parties are committed to perormin& t+eir o%li&ations, @3A t+e compan can identi eac+ partKs ri&+ts re&ardin& t+e &oods or services to %e transerred, and @4A t+e pament terms.

 compan applies t+e

revenue &uidance to contracts it+ customers and must determine i ne perormance o%li&ations are created % a contract modiication. 2.

=denti t+e separate perormance o%li&ations in t+e contract.  perormance o%li&ation is a promise in a contract to provide a product or service to a customer.  perormance o%li&ation e9ists i t+e customer can %eneit rom t+e &ood or service on its on or to&et+er it+ ot+er readil availa%le resources.

 contract ma

%e comprised o multiple perormance o%li&ations. (+e accountin& or multiple perormance o%li&ations is %ased on evaluation o +et+er t+e product or service is distinct it+in t+e contract. = eac+ o t+e &oods or services is distinct, %ut is interdependent and interrelated, t+ese &oods and services are com%ined and reported as one perormance o%li&ation. 3.

Betermine t+e transaction price. (+e transaction price is t+e amount o consideration t+at a compan e9pects to receive rom a customer in e9c+an&e or transerrin& &oods and services.

=n determinin& t+e transaction

price, companies must consider t+e olloin& actors/ @1A varia%le consideration, @2A time value o mone, @3A non-cas+ consideration, @4A consideration paid to a customer, and @5A upront ee paments. 4.

llocate t+e transaction price to separate perormance o%li&ations. = t+ere is more t+an one perormance o%li&ation, allocate t+e transaction price %ased on relative air values.

(+e %est measure o air value is +at t+e &ood or service could

%e sold or on a standalone %asis @standalone sellin& priceA. Estimates o standalone sellin& price can %e %ased on @1A adJusted marHet assessment, @2A e9pected cost plus a mar&in approac+, or @3A a residual approac+.

18-82




CA 18@1 (Continue/) 5.

0eco&nie revenue +en eac+ perormance o%li&ation is satisied.  compan satisies its perormance o%li&ation +en t+e customer o%tains control o t+e &ood or service. Companies satis perormance o%li&ations eit+er at a point in time or over a period o time. Companies reco&nie revenue over a period o time i @1A t+e customer controls t+e asset as it is created or t+e compan does not +ave an alternative use or t+e asset, and @2A t+e compan +as a ri&+t to pament.

@%A

 contract is an a&reement %eteen to or more parties t+at creates enorcea%le ri&+ts or o%li&ations. Contracts can %e ritten, oral, or implied rom customar %usiness practice.  deinition, revenue rom a contract it+ a customer cannot %e reco&nied until a contract e9ists. $n enterin& into a contract it+ a customer, a compan o%tains ri&+ts to receive consideration rom t+e customer and assumes o%li&ations to transer &oods or services to t+e customer @perormance o%li&ationsA. =n some cases, t+ere are multiple contracts related to t+e transaction, and accountin& or eac+ contract ma or ma not occur, dependin& on t+e circumstances. (+ese situations oten develop +en not onl a product is provided %ut some tpe o service is perormed as ell.

@cA

Companies oten +ave to allocate t+e transaction price to more t+an one perormance o%li&ation in a contract. = an allocation is needed, t+e transaction price allocated to t+e various perormance o%li&ations is %ased on t+eir relative air value. (+e %est measure o air value is +at t+e compan could sell t+e &ood or service on a standalone %asis, reerred to as t+e standalone sellin& price. = t+is inormation is not availa%le, companies s+ould use t+eir %est estimate o +at t+e &ood or service mi&+t sell or as a standalone unit. Bependin& on t+e circumstances, companies use t+e olloin& approac+es to determine standalone air value/ @1A dJusted marHet assessment approac+ - Evaluate t+e marHet in +ic+ it sells &oods or services and estimate t+e price t+at customers in t+at marHet are illin& to pa or t+ose &oods or services. (+at approac+ also mi&+t include reerrin& to prices rom t+e companKs competitors or similar &oods or services and adJustin& t+ose prices as necessar to relect t+e companKs costs and mar&ins; @2A E9pected cost plus a mar&in approac+ - 7orecast e9pected costs o satisin& a perormance o%li&ation and t+en add an appropriate mar&in or t+at &ood or service; or @3A 0esidual approac+ -

=

t+e

standalone sellin& price o a &ood or service is +i&+l varia%le or uncertain, t+en a compan ma estimate t+e standalone sellin& price % reerence to t+e total transaction price less t+e sum o t+e o%serva%le standalone sellin& prices o ot+er &oods or services promised in t+e contract.  sellin& price is +i&+l varia%le +en a compan sells t+e same &ood or service to dierent customers @at or near t+e same timeA or a %road ran&e o amounts.  sellin& price is uncertain +en a compan +as not et esta%lis+ed a price or a &ood or service and t+e &ood or service +as not previousl %een sold.




18-83

CA 18@1 (Continue/) @dA

Companies use an asset-lia%ilit model to reco&nie revenue. 7or e9ample, +en a compan delivers a product @satisin& its perormance o%li&ationA, it +as a ri&+t to consideration and t+ereore +as a contract asset. =, on t+e ot+er +and, t+e customer perorms irst, % prepain&, t+e seller +as a contract lia%ilit. Companies must present t+ese contract assets and contract lia%ilities on t+eir statement o inancial position. Contract assets are o to tpes/ @1A unconditional ri&+ts to receive consideration %ecause t+e compan +as satisied its perormance o%li&ation it+ a customer, and @2A conditional ri&+ts to receive consideration %ecause t+e compan +as satisied one perormance o%li&ation %ut must satis anot+er perormance o%li&ation in t+e contract %eore it can %ill t+e customer. Companies s+ould report unconditional ri&+ts to receive consideration as a receiva%le on t+e statement o inancial position. Conditional ri&+ts on t+e statement o inancial position s+ould %e reported separatel as contract assets.  contract lia%ilit is a companKs o%li&ation to transer &oods or services to a customer or +ic+ t+e compan +as received consideration rom t+e customer.

CA 18@3 @aA

 compan reco&nies revenue in t+e accountin& period +en a perormance o%li&ation is satisiedt+e revenue reco&nition principle.  He element o t+e revenue reco&nition principle is t+at a compan reco&nies revenue to depict t+e transer o &oods or services to customers in an amount t+at relects t+e consideration t+at it receives, or e9pects to receive, in e9c+an&e or t+ose &oods or services. Companies satis perormance o%li&ations eit+er at a point in time or over a period o time. Companies reco&nie revenue over a period o time i one o t+e olloin& to criteria is met. 1.

(+e customer controls t+e asset as it is created or en+anced.

2.

(+e compan does not +ave an alternative use or t+e asset created or en+anced and eit+er @1A t+e customer receives %eneits as t+e compan perorms and t+ereore t+e tasH ould not need to %e #e@e#$o#e/: o# (3) t9e con* 9!  #ig9t to *ent n/ t9i! #ig9t i! en$o#ce&'e2

(+e concept o c+an&e in control is t+e decidin& actor in determinin& +en a perormance o%li&ation is satisied. (+e customer controls t+e product or service +en it +as t+e a%ilit to direct t+e use o and o%tain su%stantiall all t+e remainin& %eneits rom t+e asset or service. Control also includes t+e customerKs a%ilit to prevent ot+er companies rom directin& t+e use o, or receivin& t+e %eneit, rom t+e asset or service. = ndicators t+at t+e customer +as o%tained control are as ollos/ 1. 18-84

(+e compan +as a ri&+t to pament or t+e asset. Copri&+t : 2'14 o+n ile < Sons, =nc.



2.

(+e compan transerred le&al title to t+e asset.

CA 18@3 (Continue/) 3. 4. 5.

(+e compan transerred p+sical possession o t+e asset. (+e customer +as si&niicant risHs and reards o oners+ip. (+e customer +as accepted t+e asset.

@%A

Companies use an asset-lia%ilit model to reco&nie revenue. 7or e9ample, +en a compan delivers a product @satisin& its perormance o%li&ationA, it +as a ri&+t to consideration and t+ereore +as a contract asset. =, on t+e ot+er +and, i t+e customer perorms irst, % prepain&, t+e seller +as a contract lia%ilit. Companies must present t+ese contract assets and contract lia%ilities on t+eir %alance s+eets. Contract assets are o to tpes/ @1A unconditional ri&+ts to receive consideration %ecause t+e compan +as satisied its perormance o%li&ation it+ a customer, and @2A conditional ri&+ts to receive consideration %ecause t+e compan +as satisied one perormance o%li&ation %ut must satis anot+er perormance o%li&ation in t+e contract %eore it can %ill t+e customer. Companies s+ould report unconditional ri&+ts to receive consideration as a receiva%le on t+e %alance s+eet. Conditional ri&+ts on t+e %alance s+eet s+ould %e reported separatel as contract assets.  contract lia%ilit is a companKs o%li&ation to transer &oods or services to a customer or +ic+ t+e compan +as received consideration rom t+e customer.

@cA

Co''ecti&i'it* reers to a customerKs credit risHt+at is, t+e risH t+at a customer ill %e una%le to pa t+e amount o consideration in accordance it+ t+e contract. n time a compan sells a product or perorms a service on account, a collecti%ilit issue occurs. ill t+e customer pa t+e promised considerationV +et+er a compan ill &et paid or satisin& a perormance o%li&ation is not a consideration in determinin& revenue reco&nition. (+e amount reco&nied is not adJusted or customer credit risH. 0at+er, companies report t+e revenue &ross and t+en present an alloance or an impairment due to %ad de%ts @reco&nied initiall and su%seIuentl in accordance it+ t+e respective %ad de%t &uidanceA prominentl as an operatin& e9pense in t+e income statement. = si&niicant dou%t e9ists at contract inception a%out collecti%ilit, it oten indicates t+at t+e parties are not committed to t+eir o%li&ations. s a result, it ma mean t+at t+e e9istence o a contract is not met.

CA 18@4 @aA

(+e point o sale is t+e most idel used %asis or t+e timin& o revenue reco&nition %ecause in most cases it provides t+e de&ree o o%Jective evidence t+at control +as transerred to t+e customers. =n ot+er ords, sales transactions it+ outsiders represent t+e point in t+e revenue&eneratin& process +en most o t+e uncertaint a%out satisin& a perormance o%li&ation is resolved.




18-85

CA 18@4 (Continue/) @%A

1.

(+ou&+ it is reco&nied t+at revenue is earned t+rou&+out t+e entire production process, &enerall it is not easi%le to measure revenue on t+e %asis o operatin& activit. =t is not easi%le %ecause o t+e a%sence o suita%le criteria or consistentl and o%Jectivel arrivin& at a periodic determination o t+e amount o revenue to reco&nie. lso, in most situations t+e sale represents t+e most important sin&le step in satisin& a perormance o%li&ation. #rior to t+e sale, t+e amount o revenue anticipated rom t+e processes o production is merel prospective revenue; its realiation remains to %e validated % actual sales. (+e accumulation o costs durin& production does not alone &enerate revenue. 0at+er, revenues are reco&nied % t+e completion o t+e entire process, includin& maHin& sales. (+us, as a &eneral rule, t+e sale cannot %e re&arded as %ein& an undul conservative %asis or t+e timin& o revenue reco&nition. E9cept in unusual circumstances, revenue reco&nition prior to sale ould %e anticipator in nature and unveriia%le in amount.

2.

(o criticie t+e sales %asis as not %ein& suicientl conservative %ecause accounts receiva%le do not represent disposa%le unds, it is necessar to assume t+at t+e collection o receiva%les is t+e decisive step in satisin& a perormance o%li&ation and t+at periodic revenue measurement and, t+ereore, net income s+ould depend on t+e amount o cas+ &enerated durin& t+e period. (+is assumption disre&ards t+e act t+at t+e sale usuall represents t+e decisive actor in satisin& a perormance o%li&ation and su%stitutes or it t+e administrative unction o mana&in& and collectin& receiva%les. =n ot+er ords, t+e investment o unds in receiva%les s+ould %e re&arded as a polic desi&ned to increase total revenues, properl reco&nied at t+e point o sale, and t+e cost o mana&in& receiva%les @e.&., %ad de%ts and collection costsA s+ould %e matc+ed it+ t+e sales in t+e proper period. (+e act t+at some revenue adJustments @e.&., sales returnsA and some e9penses @e.&., %ad de%ts and collection costsA ma occur in a period su%seIuent to t+e sale does not detract rom t+e overall useulness o t+e sales %asis or t+e timin& o revenue reco&nition. ot+ can %e estimated it+ suicient accurac so as not to detract rom t+e relia%ilit o reported net income. (+us, in t+e vast maJorit o cases or +ic+ t+e sales %asis is used, estimatin& errors, t+ou&+ unavoida%le, ill %e too immaterial in amount to arrant deerrin& revenue reco&nition to a later point in time.

@cA

Ove#@tie2 (+is %asis o reco&niin& revenue is reIuentl used % irms +ose maJor source o revenue is lon&-term construction proJects. 7or t+ese irms t+e point o sale is ar less si&niicant to satisin& a perormance o%li&ation t+an is production activit %ecause t+e sale is assured under t+e contract @e9cept o course +ere perormance is not su%stantiall in accordance it+ t+e contract termsA. (o deer revenue reco&nition until t+e completion o lon&-term construction proJects could impair si&niicantl t+e useulness o t+e intervenin& annual inancial statements %ecause t+e volume o contracts completed durin& a period is liHel to %ear no relations+ip to production volume. Burin& eac+ ear t+at a proJect is in process a portion o t+e contract price is, t+ereore, appropriatel reco&nied as t+at earKs revenue. (+e amount o t+e contract price to %e reco&nied s+ould %e proportionate to t+e earKs production pro&ress on t+e proJect. =ncome mi&+t %e reco&nied on a production %asis or some products +ose sala%ilit at a Hnon price can %e reasona%l determined as mi&+t %e t+e case it+ some precious metals and a&ricultural products.

18-86




CA 18@4 (Continue/) =t s+ould %e noted t+at t+e use o t+e production %asis in lieu o t+e sales %asis or t+e timin& o revenue reco&nition is Justiia%le onl +en total proit or loss on t+e contracts can %e estimated it+ reasona%le accurac and its ultimate realiation is reasona%l assured.

CA 18@5 @aA

0eco&niin& revenue at point o sale @a point-in-timeA is appropriate or man revenue arran&ements, %ecause t+is is t+e time at +ic+ control o t+e asset transers to t+e customer. (+at is, t+e concept o c+an&e in control is t+e decidin& actor in determinin& +en a perormance o%li&ation is satisied. (+e customer controls t+e product or service +en it +as t+e a%ilit to direct t+e use o and o%tain su%stantiall all t+e remainin& %eneits rom t+e asset or service. Control also includes t+e customerKs a%ilit to pr event ot+er companies rom directin& t+e use o, or receivin& t+e %eneit, rom t+e asset or service. C+an&e in control indicators are as ollos/ 1. 2. 3. 4. 5.

(+e compan +as a ri&+t to pament or t+e asset. (+e compan transerred le&al title to t+e asset. (+e compan transerred p+sical possession o t+e asset. (+e customer +as si&niicant risHs and reards o oners+ip. (+e customer +as accepted t+e asset.

(+us, or man revenue arran&ements @or deliver o &oods and?or servicesA, t+ese indicators are present at point o sale. @%A

Companies reco&nie revenue over a period o time i one o t+e olloin& to criteria is met. 1.


2.

(+e compan does not +ave an alternative use or t+e asset created or en+anced and eit+er @1A t+e customer receives %eneits as t+e compan perorms and t+ereore t+e tasH ould not need to %e re-perormed, or @2A t+e compan +as a ri&+t to pament and t+is ri&+t is enorcea%le.

 compan reco&nies revenue rom a perormance o%li&ation over time % measurin& t+e pro&ress toard completion. (+e met+od selected or measurin& pro&ress s+ould depict t+e transer o control rom t+e compan to t+e customer. Companies use various met+ods to determine t+e e9tent o pro&ress toard completion. (+e most common are t+e cost-to-cost and units-o-deliver met+ods. (+e o%Jective o all t+ese met+ods is to measure t+e e9tent o pro&ress in terms o costs, units, or value added. Companies identi t+e various measures @costs incurred, la%or +ours orHed, tons produced, loors completed, etc.A and classi t+em as input or output measures.




18-8!

CA 18@5 (Continue/) =nput measures @e.&., costs incurred and la%or +ours orHedA are eorts devoted to a contract. $utput measures @it+ units o deliver measured as tons produced, loors o a %uildin& completed, miles o a +i&+a completed, etc.A tracH results. *eit+er is universall applica%le to all lon&-term proJects. (+eir use reIuires t+e e9ercise o Jud&ment and careul tailorin& to t+e circumstances. ot+ input and output measures +ave certain disadvanta&es. (+e input measure is %ased on an esta%lis+ed relations+ip %eteen a unit o input and productivit. = ineiciencies cause t+e productivit relations+ip to c+an&e, inaccurate measurements result. not+er potential pro%lem is ront-end loadin&, in +ic+ si&niicant upront costs result in +i&+er estimates o completion. (o avoid t+is pro%lem, companies s+ould disre&ard some earl-sta&e construction costsor e9ample, costs o uninstalled materials or costs o su%contracts not et perormedi t+e do not relate to contract perormance. Similarl, output measures can produce inaccurate results i t+e units used are not compara%le in time, eort, or cost to complete. 7or e9ample, usin& loors @storiesA completed can %e deceivin&. Completin& t+e irst loor o an ei&+t-stor %uildin& ma reIuire more t+an one-ei&+t+ t+e total cost %ecause o t+e su%structure and oundation construction. (+e most popular input measure used to determine t+e pro&ress toard completion is t+e costto-cost %asis. nder t+is %asis, a compan measures t+e percenta&e o completion % comparin& costs incurred to date it+ t+e most recent estimate o t+e total costs reIuired to complete t+e contract. (+e percenta&e-o- completion met+od is discussed more ull in ppendi9 18, +ic+ e9amines t+e accountin& or lon&-term contracts.

CA 18@6 @aA

7a+e records W1,!'',''' on t+e date o sale. $nl W1,!'',''' is reco&nied at point o sale %ecause t+is amount is not su%Ject to a discount.

@%A

=n situations +ere t+ere ma %e returns or varia%le consideration, revenue on sales su%Ject to reversal ma not %e reco&nied @constrainedA. Companies t+ereore ma onl reco&nie revenue i @1A t+e +ave e9perience it+ similar contracts and are a%le to estimate t+e returns, and @2A %ased on e9perience, t+e do not e9pect a si&niicant reversal o revenue previousl reco&nied. (o account or t+e sale o products it+ a ri&+t o return @and or some services t+at are provided su%Ject to a reundA, t+e seller s+ould reco&nie all o t+e olloin&. 1.

18-88

0evenue or t+e transerred products in t+e amount o consideration to +ic+ t+e seller is reasona%l assured to %e entitled @considerin& t+e products e9pected to %e returnedA.




CA 18@6 (Continue/)

@cA

2.

 reund lia%ilit.

3.

n asset @and correspondin& adJustment to cost o salesA or its ri&+t to recover &lass rom t+e customer on settlin& t+e reund lia%ilit.

D# in t+e past +as reIuired t+at revenue %e reco&nied onl +en collecti%ilit is reasona%l assured. oever, t+e ne &uidance permits companies to reco&nie revenue earlier even i collecti%ilit is a pro%lem. Collecti%ilit reers to a customerKs credit risHt+at is, t+e risH t+at a customer ill %e una%le to pa t+e amount o consideration in accordance it+ t+e contract. n time a compan sells a product or perorms a service on account, a collecti%ilit issue occurs. (+e amount reco&nied is not adJusted or customer credit risH. 0at+er, companies report t+e revenue &ross and t+en present an alloance or an impairment due to %ad de%ts @reco&nied initiall and su%seIuentl in accordance it+ t+e respective %ad de%t &uidanceA prominentl as an operatin& e9pense in t+e income statement. = si&niicant dou%t e9ists at contract inception a%out collecti%ilit, it oten indicates t+at t+e parties are not committed to t+eir o%li&ations. s a result, it ma mean t+at t+e e9istence o a contract is not met.

CA 18@7 @aA

0eceipts %ased on su%scriptions s+ould %e credited to nearned Sales 0evenue. s eac+ mont+l issue is distri%uted, nearned Sales 0evenue is reduced @Br.A and Sales 0evenue is reco&nied @Cr.A.  pro%lem results %ecause o t+e unIualiied &uarantee or a ull reund. Certain companies e9perience suc+ a +i&+ rate o returns to sales t+at t+e ind it necessar to postpone revenue reco&nition @revenue reco&nied is constrainedA until t+e return privile&e +as su%stantiall e9pired. Cuttin& Ed&e is e9pectin& a 25L return rate and it ill not e9pire until t+e ne su%scriptions e9pire. Companies t+ereore ma onl reco&nie revenue on sales it+ return privile&es i @1A t+e +ave e9perience it+ similar contracts and are a%le to estimate t+e returns, and @2A %ased on e9perience, t+e do not e9pect a si&niicant reversal o revenue previousl reco&nied.

@%A

(o account or t+e sale o products it+ a ri&+t o return @and or some services t+at are provided su%Ject to a reundA, t+e seller s+ould reco&nie all o t+e olloin&. 1.

0evenue or t+e transerred products in t+e amount o consideration to +ic+ t+e seller is reasona%l assured to %e entitled @considerin& t+e products e9pected to %e returnedA.

2.

 reund lia%ilit.

3.

n asset @and correspondin& adJustment to cost o salesA or its ri&+t to recover inventor rom t+e customer on settlin& t+e reund lia%ilit.




18-8"

CA 18@7 (Continue/) @cA

Since t+e atlas premium ma %e accepted +enever reIuested, it is necessar or Cuttin& Ed&e to record a lia%ilit @a perormance o%li&ationA or estimated premium claims outstandin&. ccordin& to GAAP: t+e estimated premium claims outstandin& is a contin&ent lia%ilit +ic+ s+ould %e reported since it can %e readil estimated 6'L o t+e ne su%scri%ers N @cost o atlas O P2AT and its occurrence is pro%a%le. s t+e ne su%scription is o%tained, Cuttin& Ed&e s+ould record t+e estimated lia%ilit as ollos/ #remium E9pense....................................................................................... #remium ia%ilit.................................................................................

NNN NNN

pon reIuest or t+e atlas and pament o P2 % t+e ne su%scri%er, Cuttin& Ed&e s+ould record/ Cas+........................................................................................................... #remium ia%ilit......................................................................................... =nventor o #remiums........................................................................ @dA

NNN NNN NNN

(+e current ratio @Current ssets ÷ Current ia%ilitiesA ill c+an&e, %ut not in t+e direction Em%r t+inHs. s su%scriptions are o%tained, current assets @cas+ or accounts receiva%leA ill increase and current lia%ilities @unearned revenueA ill increase % t+e same amount. =n addition, t+e lia%ilities or estimated premium claims outstandin& and t+e reund lia%ilit ill increase it+ no c+an&e in current assets. ConseIuentl, t+e current ratio ill decrease rat+er t+an increase as proposed. *aturall as t+e revenue is reco&nied, t+ese ratios ill %ecome more avora%le. Similarl, t+e de%t to eIuit ratio ill not %e decreased due to t+e increase in lia%ilities.

CA 18@ @aA

 compan reco&nies revenue in t+e accountin& period +en a perormance o%li&ation is satisiedt+e revenue reco&nition principle.  He element o t+e revenue reco&nition principle is t+at a compan reco&nies revenue to depict t+e transer o &oods or services to customers in an amount t+at relects t+e consideration t+at it receives, or e9pects to receive, in e9c+an&e or t+ose &oods or services. (+e concept o c+an&e in control is t+e decidin& actor in determinin& +en a perormance o%li&ation is satisied. (+e customer controls t+e product or service +en it +as t+e a%ilit to direct t+e use o and o%tain su%stantiall all t+e remainin& %eneits rom t+e asset or service. Control also includes t+e customerKs a%ilit to prevent ot+er companies rom directin& t+e use o, or receivin& t+e %eneit, rom t+e asset or service. =ndicators o c+an&e in control include/ 1. 2. 3. 4. 5.

(+e compan +as a ri&+t to pament or t+e asset. (+e compan transerred le&al title to t+e asset. (+e compan transerred p+sical possession o t+e asset. (+e customer +as si&niicant risHs and reards o oners+ip. (+e customer +as accepted t+e asset.

Companies satis perormance o%li&ations eit+er at a point in time or over a period o time. Companies reco&nie revenue over a period o time i one o t+e olloin& to criteria is met.

18-"'

1.


2.

(+e compan does not +ave an alternative use or t+e asset created or en+anced and eit+er @1A t+e customer receives %eneits as t+e compan perorms and t+ereore t+e tasH ould not need to %e re-perormed, or @2A t+e compan +as a ri&+t to pament and t+is ri&+t is enorcea%le.




CA 18@ (Continue/) @%A

Driseta < Bu%el =nc., in eect, collects cas+ or merc+andise credits ar in advance o +en merc+ants urnis+ t+e &oods. (+us, t+is is an e9ample o upront paments. =n addition, since t+e data indicate t+at a%out 5 percent o t+e credits sold ill never %e redeemed, it also +as revenue rom t+is source unless t+ese credits are redeemed. Driseta < Bu%elKs revenues are reco&nied +en t+e perormance o%li&ation is met +en credits are redeemed. (+e perormance o%li&ation is to deliver premiums @ticHets and ot+er itemsA in t+e uture. (+is revenue is reco&nied +en t+e %onus points sales occur. 0easona%le estimation is crucial to revenue reco&nition. Driseta and Bu%el uses +istorical %onus points data to estimate t+e amount o consideration to allocate to t+e uture %onus point revenue.

@cA

Driseta < Bu%elKs maJor asset @in terms o data &iven in t+e IuestionA ould %e its inventor o premiums. (+e maJor account it+ a credit %alance ould %e perormance o%li&ation to deliver to merc+ants premiums in t+e uture.

CA 18@8 @aA

onest and inte&rit o inancial reportin& versus +i&+er corporate proits are t+e et+ical issues. *iesKs position represents =70S. (+e inancial statements s+ould %e presented airl and t+at ill not %e t+e case i verKs approac+ is olloed. E9ternal users o t+e statements suc+ as investors and creditors, %ot+ current and uture, ill %e misled.

@%A

*ies s+ould insist on statement presentation in accordance it+ =70S. = ver ill not accept *iesKs position, *ies ill +ave to consider alternative courses o action, suc+ as contactin& +i&+erups at Midest, and assess t+e conseIuences o eac+.

= CA 18@< @aA

idJaJa Compan s+ould reco&nie revenue as it perorms t+e orH on t+e contract @t+e percenta&e-o-completion met+odA %ecause it meets t+e criteria or revenue reco&nition over time.

@%A

#ro&ress %illin&s ould %e accounted or % increasin& accounts receiva%le and increasin& pro&ress %illin&s on contract, a contra-asset t+at is oset a&ainst t+e Construction in #rocess account. = t+e Construction in #rocess account e9ceeds t+e illin&s on Construction in #rocess account, t+e to accounts ould %e s+on net in t+e current assets section o t+e statement o inancial position. = t+e illin&s on Construction in #rocess account e9ceeds t+e Construction in #rocess account, t+e to accounts ould %e s+on net, in most cases, in t+e current lia%ilities section o t+e statement o inancial position.

@cA

(+e income reco&nied in t+e second ear o t+e our-ear contract ould %e determined usin& t+e cost-to-cost met+od o determinin& percenta&e o completion as ollos/ 1. (+e estimated total income rom t+e contract ould %e determined % deductin& t+e estimated total costs o t+e contract @t+e actual costs to date plus t+e estimated costs to completeA rom t+e contract price.




18-"1

CA 18@< (Continue/) 2. (+e actual costs to date ould %e divided % t+e estimated total costs o t+e contract to arrive at t+e percenta&e completed. (+is ould %e multiplied % t+e estimated total income rom t+e contract to arrive at t+e total income r eco&nia%le to date. 3. (+e income reco&nied in t+e second ear o t+e contract ould %e determined % deductin& t+e income reco&nied in t+e irst ear o t+e contract rom t+e total income reco&nia%le to date. @dA

18-"2

Earnin&s per s+are in t+e second ear o t+e our-ear contract ould %e +i&+er usin& t+e percenta&e-o-completion met+od instead o t+e completed-contract met+od %ecause income ould %e reco&nied in t+e second ear o t+e contract usin& t+e percenta&e-o-completion met+od, +ereas no income ould %e reco&nied in t+e second ear o t+e contract usin& t+e cost-recover met+od.




FINANCIAL REPORTING PROBLEM () 3;14 Revenue!> 1;:;3728 i''ion2 (&) MZS! #evenue! inc#e!e/ $#o <:<45 i''ion to 1;:;3 i''ion $#o 3;13 to 3;14: o# 2<2 (c) MZS! #evenue co#i!e! !'e! o$ goo/! to cu!toe#! out!i/e t9e con* 'e!! n #o#ite /e/uction $o# ctu' n/ e%ecte/ #etu#n!: /i!count! n/ 'o*'t* !c9ee vouc9e# co!t!: n/ i! !tte/ net o$ ,'ue A//e/ T% n/ ot9e# !'e! t%e!2 S'e! o$ $u#nitu#e n/ on'ine !'e! #e #eco#/e/ on /e'ive#* to t9e cu!toe#2 (/) Revenue! #e #eco#/e/ it9  /e/uction $o# e%ecte/ /i!count! n/ 'o*'t* !c9ee vouc9e#!2 T9u!: MZS: &* e!t&'i!9ing ''once! $o# e%ecte/ #etu#n!: i! $o''oing cc#u' ccounting #inci'e!2




18-"3

COMPARATI,E ANALYSIS CASE () Fo# t9e *e# 3;13: /i/! #eo#te/ net !'e! o$ K15:884 i''ion n/ Pu #eo#te/ net #evenue o$ K4:3;2 i''ion2 /i/! inc#e!e/ it! #evenue! K1:671 i''ion o# 112 $#o 3;11 to 3;13 9i'e Pu inc#e!e/ it! #evenue K3712 i''ion o# 82 $#o 3;11 to 3;132 (&) Ye!: #evenue #ecognition o'icie! #e !ii'# &ecu!e &ot9 conie! #ecognie #evenue 9en #i!D! n/ #e#/! o$ one#!9i 9ve t#n!$e##e/ to t9e &u*e#2 (c) /i/! !egent #evenue! $o# t9e $o''oing geog#9ic #egion!> Geog#9ic' in$o#tion (K in i''ion!) Net !'e! (non@G#ou) Ye# en/ing Ye# en/ing .ec 41: 3;13 .ec 41: 3;11 0e!te#n Eu#oe Eu#oen Ee#ging M#Det! No#t9 Ae#ic G#ete# C9in Ot9e# A!in M#Det! Ltin Ae#ic H"Con!o'i/tion Tot'

18-"4


5:;7 1:<5 4:51; 1:673 3:5; 1:581 ; 15:884


4:<33 1:6< 4:1;3 1:33< 3:1;4 1:47< ; 14:433


COMPARATI,E ANALYSIS CASE (Continue/) Pu #eo#te/ !'e! &* #egion: ! $o''o Region

!>

E%te#n' S'e! 1@133;13 K i''ion

EMEA Ae#ic! A!iPci$ic Cent#' unit!con!o'i/tion Seci' ite! Tot' T9u!: &ot9 conie! 9ve #egion o$ Eu#oe2


1:3142 1:;4424 1;24 41425 4:3;2 !igni$icnt !'e! out!i/e o$ t9ei# 9oe



18-"5

FINANCIAL STATEMENT ANALYSIS CASE BRITISH AIR0AYS () B#iti!9 Ai#*! (BA) #i#i'* #ovi/e! !e#vice! it #ecognie! !!en@ ge# n/ c#go #evenue 9en t9e t#n!o#ttion !e#vice i! #ovi/e/2 Seci$ic''*: !!enge# ticDet! (net o$ /i!count!) #e #eco#/! ! cu##ent 'i&i'itie! in t9e !'e! in /vnce o$ c##ige ccount unti' t9e $ig9t! occu#2 Ot9e# #evenue i! #ecognie/ t t9e tie t9e !e#vice i! #ovi/e/2 Coi!!ion co!t! #e #ecognie/ t t9e !e tie ! t9e #evenue to 9ic9 t9e* #e'te n/ #e c9#ge/ to oe#ting e%en/itu#e2 (&) BA! et9o/! #e enti#e'* con!i!tent it9 ccet&'e IFRS $o# t9e #ecognition n/ e!u#eent o$ #evenue2 T9e* e!u#e #evenue net o$ /i!count! n/ /o not #ecognie #evenue unti' t9e !e#vice i! #ovi/e/2 T9i! i! t9e c#itic' eventon'* 9en !!enge#! $'* on  BA $'ig9t i! it i! 'iDe'* t9t t9t t9e econoic &ene$it! i'' $'o to BA2 (c) In t9i! /i!c'o!u#e: BA i! /e!c#i&ing it! ticDeting oe#tion n/ t9e -u/g@ ent! invo've/ to e!tite #evenue to &e #ecognie/ on unu!e/ ticDet!2 A! in/icte/: ticDet !'e! t9t #e not e%ecte/ to &e u!e/ $o# t#n!o#ttion ([unu!e/ ticDet!) #e #ecognie/ ! #evenue u!ing e!tite! #eg#/ing t9e tiing o$ #ecognition &!e/ on t9e te#! n/ con/ition! o$ t9e ticDet n/ 9i!to#ic' t#en/!2 T9t i!: BA e!tite! t9e e#centge o$ unu!e/ ticDet! t9t i'' &e u!e/: &!e/ on it! #io# e%e#ience2 .u#ing t9e cu##ent *e#: c9nge! in e!tite! #eg#/ing t9e tiing o$ #evenue #ecognition #i#i'* $o# unu!e/ $'e%i&'e ticDet! e#e /e: #e!u'ting in inc#e!e/ #evenue &ot9 t9e cu##ent n/ #io# *e#2 T9u!: it cn #e'i&'* e!tite t9e!e ount!: 9ic9 i! 9t i! #eui#e/ un/e# IFRS2 BA in/icte! t9t ccu#te n/ tie'* /t 9ve &een o&tine/ t9#oug9 t9e inc#e!e/ u!e o$ e'ect#onic ticDet!2

18-"6




ACCONTING: ANALYSIS: AN. PRINCIPLES Accounting S'e! #evenue2222222222222222222222222222222222222222222222222222222222222222222222222222222 E%en!e!22222222222222222222222222222222222222222222222222222222222222222222222222222222222222 G#o!! #o$it $#o u &un/'e=222222222222222222222222222222222222222222222222 G#o!! #o$it on con!ignent !'e!==22222222222222222222222222222222222222222 Net incoe222222222222222222222222222222222222222222222222222222222222222222222222222222222222

<:6;;:;;; :6;:;;; 1:6;:;;; 35:;;; 13;:;;; 1:8<5:;;;

= Since t9e !u@u n/ in!t''tion &un/'e #e /e'ive#e/ t t9e !e tie: t9e#e #e to e#$o#nce o&'igtion!2 An* /i!count i! 'ie/ to t9e uin!t''tion &un/'e2 T9e tot' t#n!ction #ice o$ 65:7;; i! ''octe/ &eteen t9e euient n/ in!t''tion (54:8;;) n/ t9e !e#vice cont#ct (1;:8;; 1; ? 47 ? 4;)2 S'e! #evenue2222222222222222222222222222222222222222222222222222222 Co!t o$ goo/! !o'/ (4; ? 65; Q 16;)222222222222 G#o!! #o$it22222222222222222222222222222222222222222222222222222

54:8;; 3;:;;

Se#vice #evenue (1;:8;;  47) ? 1;2222222222222222 E%en!e (:67;  ? 47 ? 4;  47 ? 1;)222222222 Incoe on !e#vice cont#ct222222222222222222222222222 Net incoe on t9i! ##ngeent2222222222222222222

 4:;;; 3:1;;

== S'e! #evenue (3;; ? 1:3;;)22222222222222222222222222 Co!t o$ goo/! !o'/ (3;; ? 65;)222222222222222222222222 G#o!! #o$it22222222222222222222222222222222222222222222222222222

35;:;;; 1;8:;;;

34:1;;

<;; 35:;;;

Con!ignent e%en!e (35;:;;; ? 6)2222222222222 Net Incoe on t9i! ##ngeent2222222222222222222




143:;;; 13:;;; 13;:;;;

18-"!

ACCONTING: ANALYSIS: AN. PRINCIPLES (Continue/) An'*!i! Net incoe222222222222222222222222222222222222222222222222222222222222222222222222222222222222 .e#ecition e%en!e222222222222222222222222222222222222222222222222222222222222222222 Inc#e!e in o#Ding cit'222222222222222222222222222222222222222222222222222222222 Net c!9 $'o $#o oe#ting ctivitie!2222222222222222222222222222222222222 Le!!> Cit' e%en/itu#e!222222222222222222222222222222222222222222222222222222222 .ivi/en/!222222222222222222222222222222222222222222222222222222222222222222222222222 F#ee c!9 $'o222222222222222222222222222222222222222222222222222222222222222222222222222222

1:8<5:;;; 16:;;; (36;:;;;) 1:81<:;;; 6;;:;;; 13;:;;; 1:1<<:;;;

P#inci'e! n/e# t9e 6@!te o/e':  con* $i#!t i/enti$ie! t9e cont#ct it9 cu!toe#(!) i/enti$ie! t9e !e#te e#$o#nce o&'igtion! in t9e cont#ct /ete#ine! t9e t#n!ction #ice ''octe! t9e t#n!ction #ice to !e#te e#$o#nce o&'igtion!: n/ #ecognie! #evenue 9en ec9 e#$o#nce o&'igtion i! !ti!$ie/2 A! in/icte/:  con* !ti!$ie! it! e#$o#nce o&'igtion 9en t9e cu!toe# o&tin! cont#o' o$ t9e goo/ o# !e#vice2 Conie! !ti!$* e#$o#nce o&'igtion! eit9e# t  oint in tie o# ove#  e#io/ o$ tie2 Conie! #ecognie #evenue ove#  e#io/ o$ tie i$ (1) t9e cu!toe# cont#o'! t9e !!et ! it i! c#ete/ o# t9e con* /oe! not 9ve n 'te#ntive u!e $o# t9e !!et: n/ (3) t9e con* 9!  #ig9t to *ent2 In t9e c!e o$ t9e !u@u !'e!: t9e cu!toe# 9! cont#o' o$ t9e u! 9en t9e u! #e /e'ive#e/ n/ in!t''e/2 T9e !e#vice cont#ct #evenue i! #ecognie/ ove# tie ! .ive#!i$ie/ #ovi/e! t9e !e#vice!2 0it9 #e!ect to t9e con!ignent !'e!: Men#/! i! cting ! n gent #evenue on t9o!e !'e! i! #ecognie/ 9en t9e cu!toe#! u#c9!e (9ve cont#o' o$) t9e u!2 !ing cont#o' !  De* e'eent cont#i&ute! to #e'evnce &ecu!e it in/icte! t9e c!9 $'o! t9t t9e !e''e# i! entit'e/ to !  #e!u't o$ t9e #evenue ##ngeent: 9ic9 en9nce! t9e #e/ictive v'ue o$ t9e #evenue in$o#tion2

18-"8




ACCONTING: ANALYSIS: AN. PRINCIPLES (Continue/) Fit9$u' #e#e!enttion * &e !c#i$ice/ in !itution! conie! u!t ''octe t9e t#n!ction #ice to o#e t9n one e#$o#nce o&'igtion in  cont#ct2 I$ n ''oction i! nee/e/: t9e t#n!ction #ice ''octe/ to t9e v#iou! e#$o#nce o&'igtion! i! &!e/ on t9ei# #e'tive $i# v'ue2 In //ition: $it9$u' #e#e!enttion cou'/ &e $$ecte/ 9en conie! u!t e!tite #etu#n!: ##nt* o&'igtion!: n/ ot9e# e'eent! t9t $$ect t9e t#n!ction #ice2 T9e!e e!tite! cou'/ &e !u&-ect to e##o# o# &i!2




18-""

PROFESSIONAL RESEARCH ()

IAS 18: #g#9! 16@1< //#e!!e! #evenue #ecognition 9en #ig9t o$ #etu#n e%i!t!2

(&) WRig9t o$ #etu#nX i!  te#con/ition ''oing cu!toe#! to #etu#n '#ge ount! ( 9ig9 #tio o$ #etu#ne/ e#c9n/i!e to !'e!) o$ invento#*2 WBi'' n/ 9o'/X #e$e#! to !'e! t9t t9e &u*e# i! not *et #e/* to tDe /e'ive#* &ut t9e &u*e# tDe! tit'e n/ ccet! &i''ing2 (c)

09en t9e#e i!  #ig9t o$ #etu#n: #evenue i! #ecognie/ t t9e tie o$ !'e 9en t9e !e''e# #etin! on'* n in!igni$icnt #i!D o$ one#!9i: n/ it cn #e'i&i'it* e!tite $utu#e #etu#n!2 An entit* /oe! not #ecogni!e #evenue i$ it #etin! !igni$icnt #i!D! o$ one#!9i2 E%'e! o$ !itution! in 9ic9 t9e entit* * #etin t9e !igni$icnt #i!D! n/ #e#/! o$ one#!9i #e> 12 t9e entit* #etin! n o&'igtion $o# un!ti!$cto#* e#$o#nce not cove#e/ &* no#' ##ntie!2 32 t9e #eceit o$ t9e #evenue $#o  #ticu'# !'e i! contingent on t9e &u*e# !e''ing t9e goo/!2 42 t9e goo/! #e !9ie/ !u&-ect to in!t''tion n/ t9e in!t''tion i!  !igni$icnt #t o$ t9e cont#ct t9t 9! not *et &een co'ete/2 52 t9e &u*e# 9! t9e #ig9t to #e!cin/ t9e u#c9!e $o#  #e!on !eci$ie/ in t9e !'e! cont#ct: o# t t9e &u*e#! !o'e /i!c#etion it9out n* #e!on: n/ t9e entit* i! unce#tin &out t9e #o&&i'it* o$ #etu#n2

(/) T9e !e''e# #ecogni!e! #evenue 9en t9e &u*e# tDe! tit'e: #ovi/e/> 12 it i! #o&&'e t9t /e'ive#* i'' &e /e 32 t9e ite i! on 9n/: i/enti$ie/ n/ #e/* $o# /e'ive#* to t9e &u*e# t t9e tie t9e !'e i! #ecogni!e/ 42 t9e &u*e# !eci$ic''* in!t#uction! n/

cDno'e/ge!

t9e

/e$e##e/

/e'ive#*

52 t9e u!u' *ent te#! '*2 18-1''




PROFESSIONAL RESEARCH (Continue/) Revenue i! not #ecogni!e/ 9en t9e#e i! !i'* n intention to cui#e o# nu$ctu#e t9e goo/! in tie $o# /e'ive#*2 T9e #oo!e/ gui/nce un/e# t9e ne #evenue !tn/#/ cn &e $oun/ t #!2 B3@B< (Retu#n!) n/ #!2 B61@B65 (Bi'' n/ Ho'/)2




18-1'1

PROFESSIONAL SIMLATION Me!u#eent T9e ount o$ #evenue n/ e%en!e #ecognie/ on ec9 o$ t9e ##ngeent! i! ! $o''o!> 12 S'e! #evenue <6 ? (1:6;; ? 35;) Co!t o$ goo/! !o'/ (5; ? 35;) G#o!! #o$it 32 S'e! #evenue (3; ? 1:6;;) Le!!> E!tite/ #etu#n! (4 ? 1:6;;) Net !'e! Co!t o$ goo/! !o'/ (1 ? 5;) G#o!! #o$it Inte#e!t #evenue (4;:;;; ? 13 ? 413) Net incoe on t9i! ##ngeent 42 S'e! #evenue (336 ? 1:6;;) Co!t o$ goo/! !o'/ (336 ? 5;) G#o!! #o$it Coi!!ion e%en!e (44:6;; ? 8) Net incoe on t9i! ##ngeent

453:;;; 1:7;; 175:5;; 4;:;;; 5:6;; 36:6;; 13:68; 13:<3; <;; 14:83; 44:6;; 177:6;; 11:;;; 3:;;; 155:;;;

Net incoe on E@Boo!te#

433:3;;

Incoe $o# t9e u#te#> 7:6;;:;;; J 5:46;:;;; Q 433:3;;  3:53:33; +ou#n' Ent#ie! C!9 (44:6;; J 3:;;;)22222222222222222222222222222222 Coi!!ion E%en!e222222222222222222222222222222222222222 S'e! Revenue2222222222222222222222222222222222222222222

41;:6;; 3:;;;


177:6;;

18-1'2


44:6;;


177:6;;


Kieso Ifrs2e Sm Ch18

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