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BAB 6 Analyzing Operating Activities
BAB 6 Analyzing Operating Activities
OPERATING ACTIVITIES
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Revenue/Gain Recognition
Revenue is important for
Company valuation
Accounting-based contractual agreements
Management pressure to achieve income expectations
Management compensation linked to income
Valuation of stock options
Analysis must assess whether revenue reflects business reality
Assess risk of transactions
Assess risk of collectibility
Circumstances fueling questions about revenue recognition include:
Sale of assets or operations not producing cash flows to fund
interest or dividends
Lack of equity capital
Existence of contingent liabilities
Revenue/Gain Recognition
Revenue recognition (recording on the book) does not necessarily
occur when cash is received ( ACCRUAL BASIS).
Revenues and gains are recognized when: (GAAP criteria)
1. they are realized or realizable, and
2. they have been earned through substantial completion of the
activities involved in the earnings process (and no significant
added effort is necessary)
. Risk of ownership is effectively passed to the buyer
. Revenue, and related expense, are measured or estimated with
accuracy
. Revenue recognized normally yields an increase in cash,
receivables (claims to cash), or securities (from the exchange of
inventory or other assets)
Revenue/Gain Recognition
Transaction is not subject to revocation (dibatalkan / ditarik)
Those criteria generally are met at point of sale (full accrual)
and expenses charge against revenue at time of sale or rendering
of service
Revenue is not recognized prior to the point of sale because either:
A valid promise of payment has not been received from the
customer.
The company has not provided the product or service.
Exceptions to these rules:
The customer provides a valid promise of payment.
Conditions exist that contractually guarantee the sale.
point of completed production
(for mining & agricultural products)
Revenue/Gain Recognition
Revenue/Gain Recognition
Key objective: Recognize revenue to depict (menggambarkan)
the transfer of goods or services to customers in an amount that
reflects the consideration that the company receives, or expects to
receive, in exchange for these goods or services
5 steps process for revenue recognition:
1. Identify the contract with customers
2. Identify the separate performance obligations in the contract
3. Determine the transaction price
4. Allocate the transaction price to the separate performance
obligations
5. Recognize revenue when each performance obligation is
satisfied
Principle: Recognize revenue in the accounting period when the
performance obligation is satisfied
Disregard revenue
guidance to contract if .
Step
Step2:
2:Identify
Identifythe
theseparate
separateperformance
performanceobligations
obligationsin
inthe
thecontract
contract
Type of
Transaction
Sale of product
from inventory
Rendering a
service
Permitting use
of an asset
Sale of asset
other than
inventory
Description
of Revenue
Revenue from
sales
Revenue from
fees or
services
Revenue from
interest, rents,
and royalties
Gain or loss on
disposition
Timing of
Revenue
Recognition
Date of sale
(date of
delivery)
Services
performed and
billable
As time passes
or assets are
used
Date of sale or
trade-in
MOST LIKELY
AMOUNT
May be
appropriate if the
contract has only
two possible
outcomes
Implementation
Adjusted
market
assessment
approach
Expected cost
plus a margin
approach
Residual
approach
Right of
return
Repurchase
agreement
Bill and hold Result when the buyer is not yet ready to take
delivery but does take title and accept billing,
because of (1) lack of available space for the
product, (2) delays in its production schedule, or (3)
more than sufficient inventory in its distribution
channel
Revenue is recognized depending on when the
customer obtains control of that product
Principal
agent
relationship
Consignme
nts
Warranties
Non
refundable
upfront fees
Installment
sales
method
Percentage
of
completion
method for
long term
constructio
n contract
Percentage
of
completion
method for
long term
constructio
n contract
(
continued)
Completedcontract
method
Specific
performanc
e method
Layaway
sales
Contract
assets &
liabilities
(asset
liability
approach)
Contract assets :
1. unconditional rights to receive consideration
because the company has satisfied its
performance obligation with a customer
(reported as receivable), and
2. Conditional rights to receive consideration
because the company has satisfied one
performance obligation but must satisfy another
performance obligation in the contract before it
can bill the customer (reported as contract
assets)
Contract liability is a companys obligation to transfer
goods or services to a customer for which the
company has received consideration from the
customer (reported as unearned revenue).
Net income
OCI:
o Unrealized holding gain/loss on non trading (held for collection /
available for sale) equity / marketable securities (changes in FV)
(net of tax)
o Translation gain/loss (adjustment / remeasurement) on foreign
currency (exchange differences) (net of tax)
o Gain/loss on changes in revaluation surplus (revaluation of office
building) (net of tax)
o Actuarial gain/loss (adjustment) in pension plan & other post
retirement benefits (net of tax)
o Unrealized gain/loss on hedging transaction & derivative
instruments (net of tax)
Capital stock
Preferred Stock (P/S)
Ordinary / Common Stock (C/S)
Treasury stock (T/S)
Paid in capital in excess of par (P/S, C/S, T/S)
R/E
OCI
Hence:
U.S. accounting requires expensing R & D when incurred
Only costs of materials, equipment, and facilities with alternative
future uses are capitalized as tangible assets
Intangibles purchased from others for R & D activities with
alternative future uses are capitalized
Referensi
Kieso, Donald E., Jerry J. Weygandt, and Terry D. Garfield, Intermediate
Accounting: IFRS edition, edisi 2, Wiley, 2014
Stice, James D., Earl K. Stice, and K. Fred Skousen, Intermediate
Accounting, edisi 16, International Student Edition, Thomson South
Western, 2007
Stice, James D. and Earl K. Stice, and K. Fred Skousen, Intermediate
Financial Accounting, edisi 18, 2012
Subramaniam, K R and John J. Wild, Financial Statement Analysis, edisi 10,
McGraw Hill Irwin, 2009