中级财务会计ch3

1、 2013 The McGraw-Hill Companies, Inc.Chapter 35-2Revenue RecognitionRecord revenue when: 1. Revenue and costs can be measured reliably2. Probable that economic benefits will flow to seller3. Seller has transferred the risks and rewards of ownership and doesnt effectively manage or control the goods4

2、. The stage of completion can be measured reliably (for services)Revenue is the gross inflow of economic benefits during the period arising in the course of the ordinary activities of an entity when those inflows result in increases in equity, other than increases relating to contributions from equi

3、ty participants IFRS5-3Realization PrincipleRecord revenue when: ANDthere is reasonable certainty as to the collectibility of the asset to be received (usually cash).the earnings process is complete or virtually complete.Revenues are inflows or other enhancements of assets of an entity or settlement

4、s of its liabilities (or a combination of both) from delivering or producing goods, rendering services, or other activities that constitute the entity s ongoing major or central operations.U.S. GAAP5-4SEC Staff Accounting Bulletin No. 101 and 104Additional criteria for judging whether or not the rea

5、lization principle is satisfied:1. Persuasive evidence of an arrangement exists.2. Delivery has occurred or services have been performed.3. The seller s price to the buyer is fixed or determinable.4. Collectibility is reasonably assured. In addition to these four criteria, the SABs also pose a numbe

6、r of revenue recognition questions relating to each of the criteria.5-5Revenue RecognitionRevenue recognition is often tied to delivery of the product from the seller to the buyer. 5-6Revenue Recognition at DeliveryRevenue is recognized at one specific point in time when all the revenue recognition

7、criteria are satisfied.Recognize Revenue5-7Is the Seller a Principal or Agent?PrincipalHas primary responsibility for delivering product or service and is vulnerable to risks associated with delivery and collection.AgentDoes not have primary responsibility for delivering product or service but acts

8、as a facilitator that earns a commissionRecognizes as revenue the gross (total) amount received from a customer.Recognizes as revenue the net commission it receives for facilitating the sale.5-8Revenue Recognition after DeliveryUnder U.S. GAAP, when there is exceptional uncertainty:1.Installment Sal

9、es Method2.Profit Deferral MethodRecognizing revenue when goods and services are delivered as described in the previous section assumes we are able to make reliable estimates of amounts due from customers that might potentially be uncollectible. Under IFRS, when there is significant uncertainty rega

10、rding collectibility, revenue and expense recognition should be delayed until the recognition criteria can be satisfied.5-9Installment SalesOn November 1, 2013, the Belmont Corporation, a real estate developer, sold a tract of land for $800,000. The sales agreement requires the customer to make four

11、 equal annual payments of $200,000 plus interest on each November 1, beginning November 1, 2013. The land cost $560,000 to develop. The companys financial year ends on December 31. 5-10Installment Sales 5-11IFRS Method for Significant Uncertainty in Collectibility 5-12Installment Sales MethodGross P

12、rofit $240,000 $800,000 = 30%5-13Installment Sales MethodDuring 2013, Belmont Corporation collected $200,000 on its installment sales.This entry records the realized gross profit by adjusting the deferred gross profit account.5-14Profit Deferral MethodOn November 1, 2013, the Belmont Corporation, a

13、real estate developer, sold a tract of land for $800,000. The sales agreement requires the customer to make four equal annual payments of $200,000 plus interest on each November 1, beginning November 1, 2013. The land cost $560,000 to develop. The company s fiscal year ends on December 31.5-15Profit

14、 Deferral Method5-16Right of ReturnIn most situations, even though the right to return merchandise exists, revenues and expenses can be appropriately recognized at point of delivery.Estimate the returnsReduce both sales and cost of goods sold5-17Consignment SalesSometimes a company arranges for anot

15、her company to sell its product under consignment. Because the consignor retains the risks and rewards of ownership of the product and title does not pass to the consignee, the consignor does not record a sale until the consignee sells the goods and title passes to the eventual customer.5-18Revenue

16、Recognition Prior to DeliveryPercentage-of-Completion MethodCompleted Contract Method (under U.S. GAAP)Cost Recovery Method (under IFRS)Long-term Contracts5-19Percentage-of-Completion, Cost Recovery, and Completed Contract Methods ComparedAt the beginning of 2013, the Harding Construction Company re

17、ceived a contract to build an office building for $5 million. The project is estimated to take three years to complete. According to the contract, Harding will bill the buyer in installments over the construction period according to a prearranged schedule. Information related to the contract is as f

18、ollows:5-20Accounting for the Cost of Construction and Accounts ReceivableUnder the percentage-of-completion, cost recovery, and completed contract methods, all costs of construction are recorded in an asset account called construction in progress. 5-21Gross Profit RecognitionGeneral Approach5-22Gro

19、ss Profit RecognitionGeneral ApproachThe same journal entry is recorded to close out the billings on construction contract and construction in progress accounts under the percentage-of-completion, cost recovery, and completed contract methods.5-23Timing of Gross Profit Recognition Under the Percenta

20、ge-of-Completion MethodUnder the percentage-of-completion method, profit is recognized over the life of the project as the project is completed. We determine the amount of gross profit recognized in each period using the following logic:5-24Percentage-of-Completion Method Allocation of Gross Profit5

21、-25Percentage-of-Completion Method Allocation of Gross ProfitNotice that the gross profit recognized in each period is added to the construction in progress account.5-26Percentage-of-Completion Method Allocation of Gross ProfitThe income statement for each year will report the appropriate revenue an

22、d cost of construction amounts. 5-27Timing of Gross Profit Recognition Under the Completed Contract MethodUnder the completed contract method, all revenues and expenses related to the project are recognized when the contract is completed. 5-28Income RecognitionThe same total amount of profit or loss

23、 is recognized under the percentage-of-completion, cost recovery, and completed contract methods, but the timing of recognition differs.5-29Statement of Financial Position RecognitionThe balance in the construction in progress account differs among the methods because of the earlier gross profit recognition that occurs under the percentage-of-completion method. 5-30Statement of Financial Position RecognitionBillings on construction contract are subtracted from construction in progress to determine balance sheet presentation.CIP CIP BillingsBillingsAssetAssetBi