Académique Documents
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REVENUE
Intermediate Accounting
IFRS Edition
Kieso, Weygandt, and Warfield
18-1
Revenue
Revenue
18-2
The
The Current
Current Environment
Environment
(IFRS )
.
18-3
.
The
The Current
Current Environment
Environment
:
.
18-4
The
The Current
Current Environment
Environment
Revenue Recognition Classified by Nature of Transaction
Illustration 18-1
18-5
The
The Current
Current Environment
Environment
.
18-6
Revenue
Revenue Recognition
Recognition at
at Point
Point of
of Sale
Sale
.
18-7 .
Revenue
Revenue Recognition
Recognition at
at Point
Point of
of Sale
Sale
Illustration 18-2
18-8
Revenue
Revenue Recognition
Recognition at
at Point
Point of
of Sale
Sale
Illustration 18-2
18-9
Revenue
Revenue Recognition
Recognition at
at Point
Point of
of Sale
Sale
Illustration 18-2
Cash 679,000
Accounts receivable 679,000
18-10
Revenue
Revenue Recognition
Recognition at
at Point
Point of
of Sale
Sale
Illustration 18-2
Cash 700,000
Accounts receivable 679,000
Sales discounts forfeited 21,000
18-11
Revenue
Revenue Recognition
Recognition at
at Point
Point of
of Sale
Sale
18-13
Revenue
Revenue Recognition
Recognition at
at Point
Point of
of Sale
Sale
Illustration 18-3
18-14
Revenue
Revenue Recognition
Recognition at
at Point
Point of
of Sale
Sale
Illustration 18-3
18-15
Revenue
Revenue Recognition
Recognition at
at Point
Point of
of Sale
Sale
Recognition of Sale Revenue
Revenue from the sale of goods is recognized when all the following conditions are
met:
1. Company has transferred to the buyer the significant risks and rewards of
ownership of the goods;
4. It is probable that the economic benefits will flow to the company; and
:
.
.
.
.
18-16 .
Revenue
Revenue Recognition
Recognition at
at Point
Point of
of Sale
Sale
Illustration 18-4
18-17
Revenue
Revenue Recognition
Recognition at
at Point
Point of
of Sale
Sale
Solution: Butler should record the revenue at the time title passes,
provided
1. it is probable that delivery will be made;
2. the item is on hand, identified, and ready for delivery at the time the
sale is recognized;
3. Baristo acknowledges the deferred delivery arrangement; and
4. the usual payment terms apply.
It appears that these conditions were probably met and therefore
revenue recognition should be permitted at the time the agreement is
signed.
:
.
.
Baristo .
.
18-18 .
Revenue
Revenue Recognition
Recognition at
at Point
Point of
of Sale
Sale
Illustration 18-4
Butler makes the following entry to record the bill and hold sale.
18-19
Revenue
Revenue Recognition
Recognition at
at Point
Point of
of Sale
Sale
Sales Subject to Installation or Inspection
Illustration 18-5
18-20
Revenue
Revenue Recognition
Recognition at
at Point
Point of
of Sale
Sale
Layaway Sales
Illustration 18-6
18-21
Revenue
Revenue Recognition
Recognition at
at Point
Point of
of Sale
Sale
:
18-22
.
Revenue
Revenue Recognition
Recognition at
at Point
Point of
of Sale
Sale
Illustration 18-7
18-23
Revenue
Revenue Recognition
Recognition at
at Point
Point of
of Sale
Sale
August 1, 2011
Accounts receivable 300,000
Sales 300,000
October 15, 2011
Sales returns and allowances 10,000
Accounts receivable 10,000
18-26
Revenue
Revenue Recognition
Recognition at
at Point
Point of
of Sale
Sale
Illustration 18-8
18-27
Revenue
Revenue Recognition
Recognition at
at Point
Point of
of Sale
Sale
Principal-Agent Relationships
Amounts collected on behalf of the principal are not
revenue of the agent.
Revenue for the agent is the amount of the commission it
receives.
18-28 .
.
Revenue
Revenue Recognition
Recognition at
at Point
Point of
of Sale
Sale
Consignments
Manufacturers (or wholesalers) deliver goods but retain
title to the goods until they are sold.
:
.
( ) .
18-31
Long-Term
Long-Term Contracts
Contracts (Construction)
(Construction)
Rationale for using percentage-of-completion accounting
is that under most of these contracts, the
Buyer and seller have enforceable rights.
Buyer has the legal right to require specific performance on
the contract.
Seller has the right to require progress payments that
provide evidence of the buyers ownership interest.
As a result, a continuous sale occurs as the work
progresses and companies should recognize revenue
according to that progression.
.
.
.
18-32
.
Long-Term
Long-Term Contracts
Contracts (Construction)
(Construction)
Companies must use the percentage-of-completion method
when all of the following conditions exist.
1. Total contract revenue can be measured reliably;
3. Both the contract costs to complete the contract and the stage
of contract completion at the end of the reporting period can
be measured reliably; and
:
18-34
Long-Term
Long-Term Contracts
Contracts (Construction)
(Construction)
Percentage-of-Completion Method
Calculation for Revenue to Be Recognized
Illustration 18-11
Illustration 18-12
Illustration 18-13
18-35
Long-Term
Long-Term Contracts
Contracts (Construction)
(Construction)
Illustration: KC Construction Company has a contract to
construct a 4,500,000 bridge at an estimated cost of
4,000,000. The contract is to start in July 2010, and the
bridge is to be completed in October 2012. The following data
pertain to the construction period.
18-36
Long-Term
Long-Term Contracts
Contracts (Construction)
(Construction)
Illustration: Compute percentage complete.
Illustration 18-6
18-37
Long-Term
Long-Term Contracts
Contracts (Construction)
(Construction)
Illustration: KC would make the following entries to record
(1) the costs of construction, (2) progress billings, and (3)
collections.
Illustration 18-7
18-38
Long-Term
Long-Term Contracts
Contracts (Construction)
(Construction)
Percentage-of-Completion, Revenue and Gross Profit, by Year
Illustration 18-16
18-39
Long-Term
Long-Term Contracts
Contracts (Construction)
(Construction)
Illustration: KCs entries to recognize revenue and gross
profit each year and to record completion and final approval
of the contract.
Illustration 18-17
18-40
Long-Term
Long-Term Contracts
Contracts (Construction)
(Construction)
Illustration: Content of Construction in Process Account
Percentage-of-Completion Method
Illustration 18-18
18-41
Long-Term
Long-Term Contracts
Contracts (Construction)
(Construction)
Illustration 18-19
18-42
Long-Term
Long-Term Contracts
Contracts (Construction)
(Construction)
Financial StatementPercentage-of-Completion
Illustration 18-20
18-43
LO 3
Cost-Recovery
Cost-Recovery (Zero-Profit)
(Zero-Profit) Method
Method
Illustration: For the bridge project illustrated on the preceding
pages, Hardhat Construction would report the following revenues and
costs. Illustration 18-21
18-44
Cost-Recovery
Cost-Recovery (Zero-Profit)
(Zero-Profit) Method
Method
Illustration: Hardhats entries to recognize revenue and gross profit
each year and to record completion and final approval of the contract.
Illustration 18-22
18-45
Cost-Recovery
Cost-Recovery (Zero-Profit)
(Zero-Profit) Method
Method
Illustration: Comparison of gross profit recognized under different
methods.
Illustration 18-23
18-46
Long-Term
Long-Term Contracts
Contracts (Construction)
(Construction)
Financial StatementCost-Recovery Method
Illustration 18-24
18-47
Long-Term
Long-Term Contracts
Contracts (Construction)
(Construction)
Illustration:
A)
A) Prepare
Preparethe
thejournal
journalentries
entriesfor
for2010,
2010,2011,
2011,and
and2012.
2012.
18-48
Long-Term
Long-Term Contracts
Contracts (Construction)
(Construction)
Illustration:
18-49
Long-Term
Long-Term Contracts
Contracts (Construction)
(Construction)
Illustration:
18-50
Long-Term
Long-Term Contracts
Contracts (Construction)
(Construction)
Illustration:
18-51
Long-Term
Long-Term Contracts
Contracts (Construction)
(Construction)
Cost-Recovery Method
18-52 .
Cost-Recovery
Cost-Recovery Method
Method
Illustration:
18-53
Cost-Recovery
Cost-Recovery Method
Method
Illustration:
18-54
Long-Term
Long-Term Contracts
Contracts (Construction)
(Construction)
Long-Term Contract Losses
Loss in the Current Period on a Profitable Contract
Percentage-of-completion method only, the estimated
cost increase requires a current-period adjustment of
gross profit recognized in prior periods.
.
18-55
Long-Term
Long-Term Contract
Contract Losses
Losses
b)
b) Prepare
Preparethe
thejournal
journalentries
entriesfor
for2010,
2010,2011,
2011,and
and2012
2012assuming
assumingthetheestimated
estimated
cost
costto
tocomplete
completeatatthe
theend
endof
of2011
2011was
was215,436 insteadofof170,100.
215,436instead 170,100.
18-56
Long-Term
Long-Term Contract
Contract Losses
Losses
18-57
Long-Term
Long-Term Contract
Contract Losses
Losses
18-58
Long-Term
Long-Term Contract
Contract Losses
Losses
c)c) Prepare
Preparethe
thejournal
journalentries
entriesfor
for2010,
2010,2011,
2011,and
and2012
2012assuming
assumingthetheestimated
estimated
cost
costtotocomplete
completeatatthe
theend
endof
of2011
2011was
was246,038
246,038instead
insteadofof170,100.
170,100.
18-59
Long-Term
Long-Term Contract
Contract Losses
Losses
18-61
Long-Term
Long-Term Contract
Contract Losses
Losses
18-62
Long-Term
Long-Term Contract
Contract Losses
Losses
Disclosures in Financial Statements
Construction contractors should disclosure:
Revenue recognized during the period and the methods used to
determine the contract revenue and stage of completion.
Service Contracts
Follow the same criteria as long-term contracts.
To recognize revenue:
It must be reliably measurable;
Economic benefits are probable;
Stage of completion must be reliably measurable; and
Costs must be reliably measurable.
.
:
.
.
.
18-64 .
Other
Other Revenue
Revenue Recognition
Recognition Issues
Issues
Service Contracts
Single Act: Revenue recognized at the time of the act.
Three circumstances:
1. Specified number of identical or similar acts.
18-66
Other
Other Revenue
Revenue Recognition
Recognition Issues
Issues
18-68
Other
Other Revenue
Revenue Recognition
Recognition Issues
Issues
18-69
Other
Other Revenue
Revenue Recognition
Recognition Issues
Issues
18-70
Other
Other Revenue
Revenue Recognition
Recognition Issues
Issues
( MDAs)
MDAs .
.
18-72
Other
Other Revenue
Revenue Recognition
Recognition Issues
Issues
18-74
Illustration 18-34
18-75
Other
Other Revenue
Revenue Recognition
Recognition Issues
Issues
18-76