Exam 15: Revenue Recognition Issues

On 1 July 2013 Bigwell Ltd sells a machine to Archer Ltd in exchange for a promissory note that requires Archer Ltd to make five payments of $8000,the first to be made on 30 June 2014.The machine cost Bigwell Ltd $20 000 to manufacture.Bigwell Ltd would normally sell this type of machine for $30 326 for cash or short-term credit.The implicit interest rate in the agreement is 10%.What are the appropriate journal entries to record the sale agreement and the first two instalments using the gross method?

When making a provision for doubtful debts,debtors' subsidiary ledgers are not adjusted,as the provision is made in anticipation of likely non-recoverability of amounts owing,although the identity of who will not pay is unknown.

Transactions that result in an inflow of economic benefits such as the purchase of assets can be classified as a gain.

Lonsdale Ltd sells mobile phones and provides a one-year warranty.Lonsdale is able to recognise revenue at point-of-sale in accordance with IASB (2011)because:

There are various appropriate accounting treatments when a sale is made subject to a right of return.These methods include:

Transfer of 'control' of the asset is central to the recognition of revenue under the new accounting standard IASB (2011).

Accounting standards require that the provision for doubtful debts should be shown as a deduction from the class of assets to which it relates.The net expense in relation to bad and doubtful debts must also be disclosed.

Gains that result from revaluation of long-term assets are included in income.

In relation to the expense associated with the creation of an allowance for doubtful debts,the Australian Taxation Office:

Unearned revenues are assets treated as liabilities,as these are received by a business for services to be performed at a future date.

Gains must be reported net of related expenses.

Kringle Company has agreed to provide services to North to South Ltd in exchange for a piece of equipment and a cash payment.The equipment is currently recorded in North to South's books at $73 000 but independent assessors have set the fair value at $65 000.The cash payment of $20 000 will be received 12 months after completion of the services.Kringle should record revenue as:

Describe,with examples,how the recognition of revenue,at the time of sale,is affected when products require transportation.

Revenues may be generated by:

Which of the following is not a disclosure requirement of IASB (2011)?

The following is a diagram of the earnings cycle as presented by Coombes and Martin (1982). Because of uncertainty and depending on which measurement model is being applied,revenue recognition will take place at a limited number of points in the earnings cycle.In traditional historical-cost accounting,in most cases,at which point in the cycle above have revenues been recognised?

Gains never arise from the ordinary activities of an entity.

Describe the output and input measures of performance that an entity is required to use when measuring the progress to date on a construction contract.

In the case of a fixed price contract,AASB 111 specifies four conditions that must all be met in order for the percentage-of-completion method to be applied.These conditions include:

With the percentage-of-completion method of accounting for construction contracts,profit is recognised in proportion to the work performed in each reporting period.