1、 2013 The McGraw-Hill Companies,Inc.Chapter 35-2Revenue RecognitionRecord revenue when:1.Revenue and costs can be measured reliably2.Probable that economic benefits will flow to seller3.Seller has transferred the risks and rewards of ownership and doesnt effectively manage or control the goods4.The
2、stage of completion can be measured reliably(for services)Revenue is the gross inflow of economic benefits during the period arising in the course of the ordinary activities of an entity when those inflows result in increases in equity,other than increases relating to contributions from equity parti
3、cipants IFRS5-3Realization PrincipleRecord revenue when:ANDthere is reasonable certainty as to the collectibility of the asset to be received(usually cash).the earnings process is complete or virtually complete.Revenues are inflows or other enhancements of assets of an entity or settlements of its l
4、iabilities(or a combination of both)from delivering or producing goods,rendering services,or other activities that constitute the entitys ongoing major or central operations.U.S.GAAP5-4SEC Staff Accounting Bulletin No.101 and 104Additional criteria for judging whether or not the realization principl
5、e is satisfied:1.Persuasive evidence of an arrangement exists.2.Delivery has occurred or services have been performed.3.The sellers price to the buyer is fixed or determinable.4.Collectibility is reasonably assured.In addition to these four criteria,the SABs also pose a number of revenue recognition
6、 questions relating to each of the criteria.5-5Revenue RecognitionRevenue recognition is often tied to delivery of the product from the seller to the buyer.5-6Revenue Recognition at DeliveryRevenue is recognized at one specific point in time when all the revenue recognition criteria are satisfied.Re
7、cognize Revenue5-7Is the Seller a Principal or Agent?PrincipalHas primary responsibility for delivering product or service and is vulnerable to risks associated with delivery and collection.AgentDoes not have primary responsibility for delivering product or service but acts as a facilitator that ear
8、ns a commissionRecognizes as revenue the gross(total)amount received from a customer.Recognizes as revenue the net commission it receives for facilitating the sale.5-8Revenue Recognition after DeliveryUnder U.S.GAAP,when there is exceptional uncertainty:1.Installment Sales Method2.Profit Deferral Me
9、thodRecognizing revenue when goods and services are delivered as described in the previous section assumes we are able to make reliable estimates of amounts due from customers that might potentially be uncollectible.Under IFRS,when there is significant uncertainty regarding collectibility,revenue an
10、d expense recognition should be delayed until the recognition criteria can be satisfied.5-9Installment SalesOn November 1,2013,the Belmont Corporation,a real estate developer,sold a tract of land for$800,000.The sales agreement requires the customer to make four equal annual payments of$200,000 plus
11、 interest on each November 1,beginning November 1,2013.The land cost$560,000 to develop.The companys financial year ends on December 31.5-10Installment Sales 5-11IFRS Method for Significant Uncertainty in Collectibility 5-12Installment Sales MethodGross Profit$240,000$800,000=30%5-13Installment Sale
12、s MethodThis entry records the realized gross profit by adjusting the deferred gross profit account.5-14Profit Deferral MethodOn November 1,2013,the Belmont Corporation,a real estate developer,sold a tract of land for$800,000.The sales agreement requires the customer to make four equal annual paymen
13、ts of$200,000 plus interest on each November 1,beginning November 1,2013.The land cost$560,000 to develop.The companys fiscal year ends on December 31.5-15Profit Deferral Method5-16Right of ReturnIn most situations,even though the right to return merchandise exists,revenues and expenses can be appro
14、priately recognized at point of delivery.Estimate the returnsReduce both sales and cost of goods sold5-17Consignment SalesSometimes a company arranges for another company to sell its product under consignment.Because the consignor retains the risks and rewards of ownership of the product and title d
15、oes not pass to the consignee,the consignor does not record a sale until the consignee sells the goods and title passes to the eventual customer.5-18Revenue Recognition Prior to DeliveryPercentage-of-Completion MethodCompleted Contract Method(under U.S.GAAP)Cost Recovery Method (under IFRS)Long-term
16、 Contracts5-19Percentage-of-Completion,Cost Recovery,and Completed Contract Methods ComparedAt the beginning of 2013,the Harding Construction Company received a contract to build an office building for$5 million.The project is estimated to take three years to complete.According to the contract,Hardi
17、ng will bill the buyer in installments over the construction period according to a prearranged schedule.Information related to the contract is as follows:5-20Accounting for the Cost of Construction and Accounts ReceivableUnder the percentage-of-completion,cost recovery,and completed contract methods
18、,all costs of construction are recorded in an asset account called construction in progress.5-21Gross Profit RecognitionGeneral Approach5-22Gross Profit RecognitionGeneral ApproachThe same journal entry is recorded to close out the billings on construction contract and construction in progress accou
19、nts under the percentage-of-completion,cost recovery,and completed contract methods.5-23Timing of Gross Profit Recognition Under the Percentage-of-Completion MethodUnder the percentage-of-completion method,profit is recognized over the life of the project as the project is completed.We determine the
20、 amount of gross profit recognized in each period using the following logic:5-24Percentage-of-Completion Method Allocation of Gross Profit5-25Percentage-of-Completion Method Allocation of Gross ProfitNotice that the gross profit recognized in each period is added to the construction in progress acco
21、unt.5-26Percentage-of-Completion Method Allocation of Gross ProfitThe income statement for each year will report the appropriate revenue and cost of construction amounts.5-27Timing of Gross Profit Recognition Under the Completed Contract MethodUnder the completed contract method,all revenues and exp
22、enses related to the project are recognized when the contract is completed.5-28Income RecognitionThe same total amount of profit or loss is recognized under the percentage-of-completion,cost recovery,and completed contract methods,but the timing of recognition differs.5-29Statement of Financial Posi
23、tion RecognitionThe balance in the construction in progress account differs among the methods because of the earlier gross profit recognition that occurs under the percentage-of-completion method.5-30Statement of Financial Position RecognitionBillings on construction contract are subtracted from con
24、struction in progress to determine balance sheet presentation.CIP CIP BillingsBillingsAssetAssetBillings Billings CIPCIPLiabilityLiability5-31Long-term Contract LossesPeriodic Loss for Profitable ProjectsDetermine periodic loss and record loss as a credit to the construction in progress account.5-32
25、U.S.GAAP vs.IFRSHas over 100 revenue-related standards that sometimes contradict each other.The IASB and FASB are working together on a comprehensive revenue-recognition standard.Has two primary standards that also sometimes contradict each other and that dont offer guidance in some important areas(like multiple deliverables).The Boards appear committed to improving accounting in this area.5-33End of Chapter 35-34祝您成功！
