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Revenue Recognition 14th Edition
Revenue Recognition 14th Edition
REVENUE RECOGNITION
RECOGNITION
Chapter
18
Intermediate Accounting
14th Edition
Kieso, Weygandt, and Warfield
Revenue
Revenue Recognition
Recognition
Chapter 18 Chapter 18
Type of Sale
Sale of
of product
product Rendering
Rendering Sale
Sale of
of asset
asset
Permitting
Permitting use
use
Transaction from
from inventory
inventory aa service other
other than
than
service of
of an
an asset
asset inventory
inventory
At
Before During
completion
production production
of production
“The General Rule”
After delivery
On March 31,2012
Cash 6,79,000
Accounts Receivable 6,79,000
Cash 7,00,000
Accounts Receivable 6,79,000
Sales Discounts Forfeited 21,000
Extended Payment Terms (Illus:18-4)
On July 1,2012
On December 31,2012
future returns.
Illus :18-5
October 15,2012
Sales Return and Allowance 10,000
Accounts Receivable 10,000
December 31,3012
Sales Return and Allowance 11,600
{(3,00,000-10,000)x4%}
Allowance for Sales-
Returns and Allowances 11,600
Sales with Buyback Agreements
Cash 1,35,000
Sales Revenue 1,35,000
channel.
Illustration-18-7
Butter company sells Tk.4,50,000 of fireplaces to a
local coffee shop, Baristo, which is planning to
expand its locations around the city. Under the
agreement, Baristo asks Butter to retain these
fireplaces in its warehouses until the new coffee
shops that will house the fireplaces are ready. Title
passes to Baristo at the time the agreement is
signed.
Record the revenue at the time title passes, when-
1. The risks of ownership have passed to Baristo, that is
Butter does not have specific performance other than
storage.
Example:
Travel agent & Airline relationship
Consignment
Consignment
Requirement:
a) What are the standalone units for purposes of accounting for the sale of the
equipment?
b) If there is more than one standalone unit, how should the fee of Tk.20,00,000
be allocated to various components?
Two Methods:
Percentage-of-Completion Method.
Rationale is that the buyer and seller have enforceable
rights.
Completed-Contract Method.
Must use Percentage-of-Completion method when
estimates of progress toward completion, revenues, and
costs are reasonably dependable and all of the following
conditions exist:
1. The contract clearly specifies the enforceable rights regarding
goods or services by the parties, the consideration to be
exchanged, and the manner and terms of settlement.
2. The buyer can be expected to satisfy all obligations.
3. The contractor can be expected to perform under the
contract.
Companies should use the Completed-Contract method
when one of the following conditions applies when:
To record collection - ,,
In 2014 to recognize revenue and cost and to close out the inventory
and billing accounts:
Examples are:
precious metals or
agricultural products.
Revenue
Revenue Recognition
Recognition After
After Delivery
Delivery
Deposit method
Installment-Sales Method
Cash receipts
2012 sales 60,000 1,00,000 40,000
2013 sales 1,00,000 1,25,000
2014 sales 80,000
Journal Entries for 2012
1. Installment Accounts Receivable,2012 2,00,000
Installment 2,00,000
(to record sales made on installment in 2012)
2. Cash 60,000
Installment Account Receivable,2012 60,000
(To record cash collected on installment receivable)
2. Cash 2,00,000
Installment Account Receivable,2012 1,00,000
Installment Account Receivable,2013
(To record cash collected on installment receivable)
Uncollectible Accounts
Illustration:
The company sells for Tk.3,000.00 an asset costing Tk.2400.00, with
interest of 8% included in the three installment of Tk.1164.10
JOURNAL ENTRIES:
or,
Revenue 36,000 0 0
Cost of goods sold 25,000 0 0
equipment.
5. Bookkeeping and advisory services:
7. Quality control
Cash 10,000
Notes Receivable 40,000
Discount on Notes Receivable 8,058.32
Unearned Franchise Fee 41,941.68
2. If the probability of refunding the initial franchise fee is
extremely low, the amount of future services to be provided
to the franchisee is minimal, collectivity of the note is
reasonably assured, and substantial performance has
occurred
Cash 10,000
Notes Receivable 40,000
Discount on Notes Receivable 8,058.32
Revenue from Franchise Fees 41,941.68
3. If the initial down payments is not refundable,
represents a fair measure of the services already provided,
with a significant amount of services still to be performed
by Tum’s Pizza in future periods, and collectivity of the
notes is reasonable assured:
Cash 10,000
Notes Receivable 40,000
Discount on Notes Receivable 8,058.32
Revenue from Franchise Fees 10,000.00
Unearned Franchise Fee 31,941.68
4. If the initial down payments is not refundable and no
future services are required by the franchisor, but collection
of the note is so uncertain that recognition of the note as
an asset is unwarranted
Cash 10,000.00
Revenue from Franchise Fees 10,000.00
5. Under the same conditions as those listed in case 4 above,
except that the down payments is refundable or substantial
services are yet to be performed
Cash 10,000.00
Unearned Franchise Fees 10,000.00
Continuing Franchise Fees
Bargain Purchase
Options To Purchase
Franchisor’s Cost
Disclosures of Franchisors