Russell Ltd commenced the construction of a bridge on 1July 2013.It has a fixed-price contract for total revenues of $35 million.The expected completion date is 30 June 2016.The expected total cost to Russell Ltd at the beginning of the project is $29 million.The following information relates only to the construction of the bridge: \[\begin{array} { | l | r | r | r | } \hline \text { For the year ending } 30 \text { June } & \begin{array} { r } 2014 \\ ( \$ 000 ) \end{array} & \begin{array} { r } 2015 \\ ( \$ 000 ) \end{array} & \begin{array} { r } 2016 \\ ( \$ 000 ) \end{array} \\ \hline \text { Costs for the year } & 12000 & 18000 & 7000 \\ \hline \text { Costs incurred to date } & 12000 & 30000 & 37000 \\ \hline \text { Estimated costs to complete } & 19500 & 6300 & - \\ \hline \text { Progress billings during the year } & 10000 & 12000 & 13000 \\ \hline \text { Cash collected during the year } & 7000 & 10000 & 18000 \\ \hline \end{array}\] Russell Ltd uses the percentage-of-completion method based on cost to account for its construction contracts.Assuming that the entries for 2014 have been made,what are the journal entries for the year ended 30 June 2015 (rounded to the nearest $000)?

A) \[\begin{array} { | r | l | r | r | } \hline & & \$ ( 000 ) & \$ ( 000 ) \\ \hline \mathrm { Dr } & \text { Construction in progress } & 18000 & \\ \hline \mathrm { Cr } & \text { Materials, cash, etc. } & & 18000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Accounts receivable } & 12000 & \\ \hline \mathrm { Cr } & \text { Billings on construction in progress } & & 12000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Cash } & 10000 & \\ \hline \mathrm { Cr } & \text { Accounts receivable } & & 10000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Construction expenses } & 18000 & \\ \hline \mathrm { Cr } & \text { Revenue from long-term contract } & & 15992 \\ \hline \mathrm { Cr } & \text { Construction in progress } & & 2408 \\ \hline \end{array}\] B) \[\begin{array} { | r | l | r | r | } \hline & & \$ ( 000 ) & \$ ( 000 ) \\ \hline \mathrm { Dr } & \text { Construction in progress } & 30000 & \\ \hline \mathrm { Cr } & \text { Materials, cash, etc. } & & 30000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Accounts receivable } & 12000 & \\ \hline \mathrm { Cr } & \text { Billings on construction in progress } & & 12000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Cash } & 10000 & \\ \hline \mathrm { Cr } & \text { Accounts receivable } & & 10000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Unearned revenue } & 18000 & \\ \hline \mathrm { Cr } & \text { Revenue from long-term contract } & & 15686 \\ \hline \mathrm { Cr } & \text { Construction in progress } & & 2314 \\ \hline \end{array}\] C) \[\begin{array} { | l | l | r | r | } \hline & & \$ ( 000 ) & \$ ( 000 ) \\ \hline \mathrm { Dr } & \text { Construction in progress } & 12000 & \\ \hline \mathrm { Cr } & \text { Materials, cash, etc. } & & 12000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Accounts receivable } & 12000 & \\ \hline \mathrm { Cr } & \text { Billings on construction in progress } & & 12000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Cash } & 10000 & \\ \hline \mathrm { Cr } & \text { Accounts receivable } & & 10000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Construction in progress } & 18000 & \\ \hline \mathrm { Dr } & \text { Construction expenses } & 12000 & \\ \hline \mathrm { Cr } & \text { Revenue from long-term contract } & & 30000 \\ \hline \end{array}\] D) \[\begin{array} { | r | l | r | r | } \hline & & \$( 000 ) & \$ ( 000 ) \\ \hline \mathrm { Dr } & \text { Construction in progress } & 18000 & \\ \hline \mathrm { Cr } & \text { Materials, cash, etc. } & & 18000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Accounts receivable } & 12000 & \\ \hline \mathrm { Cr } & \text { Billings on construction in progress } & & 12000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Cash } & 10000 & \\ \hline \mathrm { Cr } & \text { Accounts receivable } & & 10000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Construction in progress } & 1477 & \\ \hline \mathrm { Dr } & \text { Construction expenses } & 18000 & \\ \hline \mathrm { Cr } & \text { Revenue from long-term contract } & & 19477 \\ \hline \end{array}\] A) \[\begin{array} { | r | l | r | r | } \hline & & \$ ( 000 ) & \$ ( 000 ) \\ \hline \mathrm { Dr } & \text { Construction in progress } & 18000 & \\ \hline \mathrm { Cr } & \text { Materials, cash, etc. } & & 18000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Accounts receivable } & 12000 & \\ \hline \mathrm { Cr } & \text { Billings on construction in progress } & & 12000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Cash } & 10000 & \\ \hline \mathrm { Cr } & \text { Accounts receivable } & & 10000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Construction expenses } & 18000 & \\ \hline \mathrm { Cr } & \text { Revenue from long-term contract } & & 15992 \\ \hline \mathrm { Cr } & \text { Construction in progress } & & 2408 \\ \hline \end{array}\] B) \[\begin{array} { | r | l | r | r | } \hline & & \$ ( 000 ) & \$ ( 000 ) \\ \hline \mathrm { Dr } & \text { Construction in progress } & 30000 & \\ \hline \mathrm { Cr } & \text { Materials, cash, etc. } & & 30000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Accounts receivable } & 12000 & \\ \hline \mathrm { Cr } & \text { Billings on construction in progress } & & 12000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Cash } & 10000 & \\ \hline \mathrm { Cr } & \text { Accounts receivable } & & 10000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Unearned revenue } & 18000 & \\ \hline \mathrm { Cr } & \text { Revenue from long-term contract } & & 15686 \\ \hline \mathrm { Cr } & \text { Construction in progress } & & 2314 \\ \hline \end{array}\] C) \[\begin{array} { | l | l | r | r | } \hline & & \$ ( 000 ) & \$ ( 000 ) \\ \hline \mathrm { Dr } & \text { Construction in progress } & 12000 & \\ \hline \mathrm { Cr } & \text { Materials, cash, etc. } & & 12000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Accounts receivable } & 12000 & \\ \hline \mathrm { Cr } & \text { Billings on construction in progress } & & 12000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Cash } & 10000 & \\ \hline \mathrm { Cr } & \text { Accounts receivable } & & 10000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Construction in progress } & 18000 & \\ \hline \mathrm { Dr } & \text { Construction expenses } & 12000 & \\ \hline \mathrm { Cr } & \text { Revenue from long-term contract } & & 30000 \\ \hline \end{array}\] D) \[\begin{array} { | r | l | r | r | } \hline & & \$( 000 ) & \$ ( 000 ) \\ \hline \mathrm { Dr } & \text { Construction in progress } & 18000 & \\ \hline \mathrm { Cr } & \text { Materials, cash, etc. } & & 18000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Accounts receivable } & 12000 & \\ \hline \mathrm { Cr } & \text { Billings on construction in progress } & & 12000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Cash } & 10000 & \\ \hline \mathrm { Cr } & \text { Accounts receivable } & & 10000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Construction in progress } & 1477 & \\ \hline \mathrm { Dr } & \text { Construction expenses } & 18000 & \\ \hline \mathrm { Cr } & \text { Revenue from long-term contract } & & 19477 \\ \hline \end{array}\]

Undersea Construction Ltd commenced the construction of a tunnel under a major river for public transport on 1 July 2014.It has a fixed-price contract for total revenues of $36 million.The expected completion date is 30 June 2017.The expected total cost to Undersea Construction at the beginning of the project is $28 million.The following information relates only to the construction of the tunnel: \[\begin{array} { | l | r | r | r | } \hline \text { For the year ending } 30 \text { June } & \begin{array} { r } 2015 \\ ( \$ 000 ) \end{array} & \begin{array} { r } 2016 \\ ( \$ 000 ) \end{array} & \begin{array} { r } 2017 \\ ( \$ 000 ) \end{array} \\ \hline \text { Costs for the year } & 5000 & 15000 & 10000 \\ \hline \text { Costs incurred to date } & 5000 & 20000 & 30000 \\ \hline \text { Estimated costs to complete } & 22000 & 8500 & - \\ \hline \text { Progress billings during the year } & 10000 & 22000 & 4000 \\ \hline \text { Cash collected during the year } & 9000 & 19000 & 8000 \\ \hline \end{array}\] Undersea Construction uses the percentage-of-completion method based on cost to account for its construction contracts.What is the gross profit to be recognised in each of the 3 years (rounded to the nearest $000)?

A) \[\begin{array} { | l | l | l | } \hline 2014 ( \$ 000 ) : & 2015 ( \$ 000 ) : & 2016 ( \$ 000 ) : \\ \hline 4000 & 4000 & ( 3000 ) \\ \hline \end{array}\] B) \[\begin{array} { | l | l | l | } \hline 2014 ( \$ 000 ) : & 2015 ( \$ 000 ) : & 2016 ( \$ 000 ) : \\ \hline 10000 & 22000 & 4000 \\ \hline \end{array}\] C) \[\begin{array} { | l | l | l |} \hline 2014 ( \$ 000 ) : & 2015 ( \$ 000 ) : & 2016 ( \$ 000 ) : \\ \hline 1667 & 3596 & 737 \\ \hline \end{array}\] D) \[\begin{array} { | l | l | l | } \hline 2014 ( \$ 000 ) : & 2015 ( \$ 000 ) : & 2016 ( \$ 000 ) : \\ \hline 925 & 3989 & 1086 \\ \hline \end{array}\] A) \[\begin{array} { | l | l | l | } \hline 2014 ( \$ 000 ) : & 2015 ( \$ 000 ) : & 2016 ( \$ 000 ) : \\ \hline 4000 & 4000 & ( 3000 ) \\ \hline \end{array}\] B) \[\begin{array} { | l | l | l | } \hline 2014 ( \$ 000 ) : & 2015 ( \$ 000 ) : & 2016 ( \$ 000 ) : \\ \hline 10000 & 22000 & 4000 \\ \hline \end{array}\] C) \[\begin{array} { | l | l | l |} \hline 2014 ( \$ 000 ) : & 2015 ( \$ 000 ) : & 2016 ( \$ 000 ) : \\ \hline 1667 & 3596 & 737 \\ \hline \end{array}\] D) \[\begin{array} { | l | l | l | } \hline 2014 ( \$ 000 ) : & 2015 ( \$ 000 ) : & 2016 ( \$ 000 ) : \\ \hline 925 & 3989 & 1086 \\ \hline \end{array}\]

Exam 15: Revenue Recognition Issues

IASB and FASB initiated a joint project to address some inconsistencies of recognition of revenue in contracts with customers with other accounting standards.Discuss two of these inconsistencies.

(Essay)

(Multiple Choice)

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Question 77

Explain the difference between revenue and gains as defined in the AASB (IASB)Conceptual Framework.

(Essay)

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Question 78

What are the three conditions that must be met in order for revenue to be recognised when the sale of a product gives the buyer the right to return the product?

(Short Answer)

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Question 79

Showing 61 - 79 of 79

Exam 15: Revenue Recognition Issues

IASB and FASB initiated a joint project to address some inconsistencies of recognition of revenue in contracts with customers with other accounting standards.Discuss two of these inconsistencies.

If the borrower prepays interest,the inflow of future economic benefits represented by the prepayment would not constitute an item of revenue to the lender because the lender has a present obligation to the borrower to provide finance for the period to which the prepayment relates.

The general rule under modified historical-cost accounting is that holding gains on non-current assets should be:

The percentage of completion can be measured in a number of ways,including:

Bellarine Ltd is publisher of Mode magazine and its customers usually sign a three-year subscription with an advance payment of $500.Mode magazine has 12 issues in a year.What is the appropriate accounting treatment for this sale on the date of signing that is in accordance with IASB (2011)Revenue?

Using the cost method to calculate the percentage of completion,the formula for the current period revenue or gross profit to be recognised is:

Where the percentage-of-completion method is based on costs,costs that relate to the contract activity generally and are not normally related to specific contracts,such as finance costs,should be allocated across the projects currently in progress.

Which of the following statements is not in accordance with IASB (2011)Revenue from Contracts with Customers with respect to revenue recognition when right of return exists?

In the situation that a debtor becomes unable to pay and the amount has not been anticipated through a provision for doubtful debts,what is the entry to record the bad debt?

The following is a diagram of the earnings cycle as presented by Coombes and Martin (1982). For products such as precious metals or agricultural products revenue is recognised at which point in the earnings cycle shown above?

IASB (2011)specifies the accounting treatment in the case that the outcome of a construction contract cannot be reliably assessed.The treatment specified is:

In considering whether to recognise revenue when there are associated options:

When goods are sold 'free on board' (f.o.b.)shipping point,the revenue should be recognised when:

The percentage-of-completion method that may be used to account for construction contracts can be justified on the basis that:

Explain the difference between revenue and gains as defined in the AASB (IASB)Conceptual Framework.

What are the three conditions that must be met in order for revenue to be recognised when the sale of a product gives the buyer the right to return the product?

An Overview of the Australian External Reporting Environment

The Conceptual Framework of Accounting and Its Relevance to Financial Reporting

Theories of Accounting

An Overview of Accounting for Assets

Depreciation of Property, plant and Equipment

Revaluations and Impairment Testing of Non-Current Assets

Inventory

Accounting for Intangibles

Accounting for Heritage Assets and Biological Assets

An Overview of Accounting for Liabilities

Accounting for Leases

Accounting for Employee Benefits

Share Capital and Reserves

Accounting for Financial Instruments

The Statement of Comprehensive Income and Statement of Changes in Equity

Accounting for Share-Based Payments

Accounting for Income Taxes

The Statement of Cash Flows

Accounting for the Extractive Industries

Accounting for General Insurance Contracts

Accounting for Superannuation Plans

Events Occurring After the End of the Reporting Period

Segment Reporting

Related Party Disclosures

Earnings Per Share

Accounting for Group Structures

Further Consolidation Issues I: Accounting for Intragroup Transactions

Further Consolidation Issues II: Accounting for Non-Controlling Interests

Further Consolidation Issues IV: Accounting for Changes in the Degree of Ownership of a Subsidiary

Accounting for Equity Investments,including Investments in Associates and Joint Arrangements

Accounting for Foreign Currency Transactions

Translating the Financial Statements of Foreign Operations

Accounting for Corporate Social Responsibility

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