中级财务会计ch3.ppt

1、,Revenue Recognition,Chapter 3,Revenue Recognition,Record revenue when:,Revenue and costs can be measured reliably Probable that economic benefits will flow to seller Seller has transferred the risks and rewards of ownership and doesnt effectively manage or control the goods The stage of completion

2、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 equity participants,IFRS,Real

3、ization Principle,Record revenue when:,Revenues are inflows or other enhancements of assets of an entity or settlements of its liabilities (or a combination of both) from delivering or producing goods, rendering services, or other activities that constitute the entitys ongoing major or central opera

4、tions.,U.S. GAAP,SEC Staff Accounting Bulletin No. 101 and 104,Additional criteria for judging whether or not the realization principle is satisfied: Persuasive evidence of an arrangement exists. Delivery has occurred or services have been performed. The sellers price to the buyer is fixed or determ

5、inable. Collectibility is reasonably assured.,In addition to these four criteria, the SABs also pose a number of revenue recognition questions relating to each of the criteria.,Revenue Recognition,Revenue recognition is often tied to delivery of the product from the seller to the buyer.,Revenue Reco

6、gnition at Delivery,Revenue is recognized at one specific point in time when all the revenue recognition criteria are satisfied.,Recognize Revenue,Is the Seller a Principal or Agent?,Principal Has primary responsibility for delivering product or service and is vulnerable to risks associated with del

7、ivery and collection.,Agent Does not have primary responsibility for delivering product or service but acts as a facilitator that earns a commission,Recognizes as revenue the gross (total) amount received from a customer.,Recognizes as revenue the net commission it receives for facilitating the sale

8、.,Revenue Recognition after Delivery,Under U.S. GAAP, when there is exceptional uncertainty: Installment Sales Method Profit Deferral Method,Recognizing revenue when goods and services are delivered as described in the previous section assumes we are able to make reliable estimates of amounts due fr

9、om customers that might potentially be uncollectible.,Under IFRS, when there is significant uncertainty regarding collectibility, revenue and expense recognition should be delayed until the recognition criteria can be satisfied.,Installment Sales,On November 1, 2013, the Belmont Corporation, a real

10、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 companys financial year ends on December 31.,Installment

11、Sales,IFRS Method for Significant Uncertainty in Collectibility,Installment Sales Method,Gross Profit $240,000 $800,000 = 30%,Installment Sales Method,Profit Deferral Method,On November 1, 2013, the Belmont Corporation, a real estate developer, sold a tract of land for $800,000. The sales agreement

12、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 companys fiscal year ends on December 31.,Profit Deferral Method,Right of Return,In most situations, even though the right to retu

13、rn merchandise exists, revenues and expenses can be appropriately recognized at point of delivery.,Estimate the returns,Reduce both sales and cost of goods sold,Consignment Sales,Sometimes a company arranges for another company to sell its product under consignment.,Because the consignor retains the

14、 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.,Revenue Recognition Prior to Delivery,Percentage-of-Completion Method,Completed Contract Method

15、 (under U.S. GAAP) Cost Recovery Method (under IFRS),Long-term Contracts,Percentage-of-Completion, Cost Recovery, and Completed Contract Methods Compared,At the beginning of 2013, the Harding Construction Company received a contract to build an office building for $5 million. The project is estimate

16、d 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 follows:,Accounting for the Cost of Construction and Accounts Receivable,Under the per

17、centage-of-completion, cost recovery, and completed contract methods, all costs of construction are recorded in an asset account called construction in progress.,Gross Profit RecognitionGeneral Approach,Gross Profit RecognitionGeneral Approach,The same journal entry is recorded to close out the bill

18、ings on construction contract and construction in progress accounts under the percentage-of-completion, cost recovery, and completed contract methods.,Timing of Gross Profit Recognition Under the Percentage-of-Completion Method,Under the percentage-of-completion method, profit is recognized over the

19、 life of the project as the project is completed.,We determine the amount of gross profit recognized in each period using the following logic:,Percentage-of-Completion Method Allocation of Gross Profit,Percentage-of-Completion Method Allocation of Gross Profit,Notice that the gross profit recognized

20、 in each period is added to the construction in progress account.,Percentage-of-Completion Method Allocation of Gross Profit,The income statement for each year will report the appropriate revenue and cost of construction amounts.,Timing of Gross Profit Recognition Under the Completed Contract Method

21、,Under the completed contract method, all revenues and expenses related to the project are recognized when the contract is completed.,Income Recognition,The same total amount of profit or loss is recognized under the percentage-of-completion, cost recovery, and completed contract methods, but the timing of recognition differs.,Statement of Financial Position Recognition,The balance in the construction in progress account differs among the meth