This document discusses guidelines for revenue recognition under accounting standards. It covers the principles that revenue should be realized or realizable and earned. It describes different methods of revenue recognition that may be used, such as at the point of sale, before or after delivery, or over time using percentage of completion. It also discusses alternative accounting methods used for long-term contracts. Additionally, it covers potential issues with revenue recognition like sales with rights of return, discounts, or buyback agreements. Special transactions involving consignment or principal-agent relationships are also addressed.
Conceptual Framework for Financial Reportingreskino1
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
Describe the usefulness of a conceptual framework and the objective of financial reporting.
Identify the qualitative characteristics of accounting information and the basic elements of financial statements.
Review the basic assumptions of accounting.
Explain the application of the basic principles of accounting.
Conceptual Framework for Financial Reportingreskino1
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
Describe the usefulness of a conceptual framework and the objective of financial reporting.
Identify the qualitative characteristics of accounting information and the basic elements of financial statements.
Review the basic assumptions of accounting.
Explain the application of the basic principles of accounting.
A presentation on Property, Plant & Equipment (PPE)-IAS 16, Prepared by a few students of Dept. of Accounting & Info. Systems, Jahangirnagar University, Savar, Dhaka
After studying this chapter, you should be able to:
1. Discuss the characteristics, valuation, and amortization of intangible assets.
2. Describe the accounting for various types of intangible assets.
3. Explain the accounting issues for recording goodwill.
4. Identify impairment procedures and presentation requirements for intangible assets.
5. Describe the accounting and presentation for research and development and similar costs.
A presentation on Property, Plant & Equipment (PPE)-IAS 16, Prepared by a few students of Dept. of Accounting & Info. Systems, Jahangirnagar University, Savar, Dhaka
After studying this chapter, you should be able to:
1. Discuss the characteristics, valuation, and amortization of intangible assets.
2. Describe the accounting for various types of intangible assets.
3. Explain the accounting issues for recording goodwill.
4. Identify impairment procedures and presentation requirements for intangible assets.
5. Describe the accounting and presentation for research and development and similar costs.
FOR MORE CLASSES VISIT
www.acc291guide.com
1. The term “receivables” refers to cash to be paid to debtors. merchandise to be collected from individuals or companies. cash to be paid to creditors. amounts due from individuals or companies. 2. Three accounting issues associated with accounts receivable are depreciating
Business sale transactions are rarely structured all in cash, especially in the current climate. For a number of reasons including tax, financing, buyer hedging and maximisation of value, deals can be structured in a variety of way and we have focused on some of the more common ones below:
Cash
Deferred payments
Retentions
Performance related payments (PRP)
Earn Outs
Elevator Deals
Shares
Mergers
Top of Form 1.If the Hunter Corp. has an ROE of 13 and.docxamit657720
Top of Form
1.
If the Hunter Corp. has an ROE of 13 and a payout ratio of 15 percent, what is its sustainable growth rate?
(Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
2.
The most recent financial statements for Williamson, Inc., are shown here (assuming no income taxes):
Income Statement
Balance Sheet
Sales
$
8,300
Assets
$
23,200
Debt
$
9,000
Costs
5,490
Equity
14,200
Net income
$
2,810
Total
$
23,200
Total
$
23,200
Assets and costs are proportional to sales. Debt and equity are not. No dividends are paid. Next year’s sales are projected to be $9,545.
What is the external financing needed?
(Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
External financing needed
$
[removed]
3.
*
The external funds needed (EFN) equation projects the addition to retained earnings as:
PM
× ? Sales.
PM
×? Sales
×
(1 -
d
).
PM
× Projected sales × (1 -
d
).
Projected sales × (1 -
d
).
PM
×Projected sales.
4.
The maximum rate at which a firm can grow while maintaining a constant debt-equity ratio is best defined by its:
rate of return on assets.
internal rate of growth.
average historical rate of growth.
rate of return on equity.
sustainable rate of growth.
5.
The extended version of the percentage of sales method:
assumes that all net income will be paid out in dividends to stockholders.
assumes that all net income will be retained by the firm and offset by a reduction in debt.
is based on a capital intensity ratio of 1.0.
requires that all financial statement accounts change at the same rate.
separates accounts that vary with sales from those that do not vary with sales.
6.
Which one of the following depicts a correct relationship?
Dividend payout ratio = 1 – Retention ratio
Total asset turnover = 1 + Capital intensity ratio
ROA = ROE × (1 + Debt-equity ratio)
ROE = 1 – ROA
Equity multiplier = 1 – Debt-equity ratio
7.
The sustainable growth rate will be equivalent to the internal growth rate when, and only when,:
a firm has no debt.
the growth rate is positive.
the plowback ratio is positive but less than 1.
a firm has a debt-equity ratio equal to 1.
the retention ratio is equal to 1.
8.
Financial planning, when properly executed:
ignores the normal restraints encountered by a firm.
is based on the internal rate of growth.
reduces the necessity of daily management oversight of the business operations.
ensures internal consistency among the firm?s various goals.
eliminates the need to plan more than one year in advance.
9.
Marcie's Mercantile wants to maintain its current dividend policy, which is a payout ratio of 35 percent. The firm does not want to increase its equity financing but is willing to maintain its current debt-equity ratio. Given these requirements, the maximum rate at which Marcie's can grow is equal to:
35 percent ...
Similar to Revenue recognition-14th-edition (1) (20)
US Economic Outlook - Being Decided - M Capital Group August 2021.pdfpchutichetpong
The U.S. economy is continuing its impressive recovery from the COVID-19 pandemic and not slowing down despite re-occurring bumps. The U.S. savings rate reached its highest ever recorded level at 34% in April 2020 and Americans seem ready to spend. The sectors that had been hurt the most by the pandemic specifically reduced consumer spending, like retail, leisure, hospitality, and travel, are now experiencing massive growth in revenue and job openings.
Could this growth lead to a “Roaring Twenties”? As quickly as the U.S. economy contracted, experiencing a 9.1% drop in economic output relative to the business cycle in Q2 2020, the largest in recorded history, it has rebounded beyond expectations. This surprising growth seems to be fueled by the U.S. government’s aggressive fiscal and monetary policies, and an increase in consumer spending as mobility restrictions are lifted. Unemployment rates between June 2020 and June 2021 decreased by 5.2%, while the demand for labor is increasing, coupled with increasing wages to incentivize Americans to rejoin the labor force. Schools and businesses are expected to fully reopen soon. In parallel, vaccination rates across the country and the world continue to rise, with full vaccination rates of 50% and 14.8% respectively.
However, it is not completely smooth sailing from here. According to M Capital Group, the main risks that threaten the continued growth of the U.S. economy are inflation, unsettled trade relations, and another wave of Covid-19 mutations that could shut down the world again. Have we learned from the past year of COVID-19 and adapted our economy accordingly?
“In order for the U.S. economy to continue growing, whether there is another wave or not, the U.S. needs to focus on diversifying supply chains, supporting business investment, and maintaining consumer spending,” says Grace Feeley, a research analyst at M Capital Group.
While the economic indicators are positive, the risks are coming closer to manifesting and threatening such growth. The new variants spreading throughout the world, Delta, Lambda, and Gamma, are vaccine-resistant and muddy the predictions made about the economy and health of the country. These variants bring back the feeling of uncertainty that has wreaked havoc not only on the stock market but the mindset of people around the world. MCG provides unique insight on how to mitigate these risks to possibly ensure a bright economic future.
Currently pi network is not tradable on binance or any other exchange because we are still in the enclosed mainnet.
Right now the only way to sell pi coins is by trading with a verified merchant.
What is a pi merchant?
A pi merchant is someone verified by pi network team and allowed to barter pi coins for goods and services.
Since pi network is not doing any pre-sale The only way exchanges like binance/huobi or crypto whales can get pi is by buying from miners. And a merchant stands in between the exchanges and the miners.
I will leave the telegram contact of my personal pi merchant. I and my friends has traded more than 6000pi coins successfully
Tele-gram
@Pi_vendor_247
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
NO1 Uk Divorce problem uk all amil baba in karachi,lahore,pakistan talaq ka m...Amil Baba Dawood bangali
Contact with Dawood Bhai Just call on +92322-6382012 and we'll help you. We'll solve all your problems within 12 to 24 hours and with 101% guarantee and with astrology systematic. If you want to take any personal or professional advice then also you can call us on +92322-6382012 , ONLINE LOVE PROBLEM & Other all types of Daily Life Problem's.Then CALL or WHATSAPP us on +92322-6382012 and Get all these problems solutions here by Amil Baba DAWOOD BANGALI
#vashikaranspecialist #astrologer #palmistry #amliyaat #taweez #manpasandshadi #horoscope #spiritual #lovelife #lovespell #marriagespell#aamilbabainpakistan #amilbabainkarachi #powerfullblackmagicspell #kalajadumantarspecialist #realamilbaba #AmilbabainPakistan #astrologerincanada #astrologerindubai #lovespellsmaster #kalajaduspecialist #lovespellsthatwork #aamilbabainlahore#blackmagicformarriage #aamilbaba #kalajadu #kalailam #taweez #wazifaexpert #jadumantar #vashikaranspecialist #astrologer #palmistry #amliyaat #taweez #manpasandshadi #horoscope #spiritual #lovelife #lovespell #marriagespell#aamilbabainpakistan #amilbabainkarachi #powerfullblackmagicspell #kalajadumantarspecialist #realamilbaba #AmilbabainPakistan #astrologerincanada #astrologerindubai #lovespellsmaster #kalajaduspecialist #lovespellsthatwork #aamilbabainlahore #blackmagicforlove #blackmagicformarriage #aamilbaba #kalajadu #kalailam #taweez #wazifaexpert #jadumantar #vashikaranspecialist #astrologer #palmistry #amliyaat #taweez #manpasandshadi #horoscope #spiritual #lovelife #lovespell #marriagespell#aamilbabainpakistan #amilbabainkarachi #powerfullblackmagicspell #kalajadumantarspecialist #realamilbaba #AmilbabainPakistan #astrologerincanada #astrologerindubai #lovespellsmaster #kalajaduspecialist #lovespellsthatwork #aamilbabainlahore #Amilbabainuk #amilbabainspain #amilbabaindubai #Amilbabainnorway #amilbabainkrachi #amilbabainlahore #amilbabaingujranwalan #amilbabainislamabad
The secret way to sell pi coins effortlessly.DOT TECH
Well as we all know pi isn't launched yet. But you can still sell your pi coins effortlessly because some whales in China are interested in holding massive pi coins. And they are willing to pay good money for it. If you are interested in selling I will leave a contact for you. Just telegram this number below. I sold about 3000 pi coins to him and he paid me immediately.
Telegram: @Pi_vendor_247
If you are looking for a pi coin investor. Then look no further because I have the right one he is a pi vendor (he buy and resell to whales in China). I met him on a crypto conference and ever since I and my friends have sold more than 10k pi coins to him And he bought all and still want more. I will drop his telegram handle below just send him a message.
@Pi_vendor_247
how to swap pi coins to foreign currency withdrawable.DOT TECH
As of my last update, Pi is still in the testing phase and is not tradable on any exchanges.
However, Pi Network has announced plans to launch its Testnet and Mainnet in the future, which may include listing Pi on exchanges.
The current method for selling pi coins involves exchanging them with a pi vendor who purchases pi coins for investment reasons.
If you want to sell your pi coins, reach out to a pi vendor and sell them to anyone looking to sell pi coins from any country around the globe.
Below is the contact information for my personal pi vendor.
Telegram: @Pi_vendor_247
What website can I sell pi coins securely.DOT TECH
Currently there are no website or exchange that allow buying or selling of pi coins..
But you can still easily sell pi coins, by reselling it to exchanges/crypto whales interested in holding thousands of pi coins before the mainnet launch.
Who is a pi merchant?
A pi merchant is someone who buys pi coins from miners and resell to these crypto whales and holders of pi..
This is because pi network is not doing any pre-sale. The only way exchanges can get pi is by buying from miners and pi merchants stands in between the miners and the exchanges.
How can I sell my pi coins?
Selling pi coins is really easy, but first you need to migrate to mainnet wallet before you can do that. I will leave the telegram contact of my personal pi merchant to trade with.
Tele-gram.
@Pi_vendor_247
how to sell pi coins on Bitmart crypto exchangeDOT TECH
Yes. Pi network coins can be exchanged but not on bitmart exchange. Because pi network is still in the enclosed mainnet. The only way pioneers are able to trade pi coins is by reselling the pi coins to pi verified merchants.
A verified merchant is someone who buys pi network coins and resell it to exchanges looking forward to hold till mainnet launch.
I will leave the telegram contact of my personal pi merchant to trade with.
@Pi_vendor_247
Latino Buying Power - May 2024 Presentation for Latino CaucusDanay Escanaverino
Unlock the potential of Latino Buying Power with this in-depth SlideShare presentation. Explore how the Latino consumer market is transforming the American economy, driven by their significant buying power, entrepreneurial contributions, and growing influence across various sectors.
**Key Sections Covered:**
1. **Economic Impact:** Understand the profound economic impact of Latino consumers on the U.S. economy. Discover how their increasing purchasing power is fueling growth in key industries and contributing to national economic prosperity.
2. **Buying Power:** Dive into detailed analyses of Latino buying power, including its growth trends, key drivers, and projections for the future. Learn how this influential group’s spending habits are shaping market dynamics and creating opportunities for businesses.
3. **Entrepreneurial Contributions:** Explore the entrepreneurial spirit within the Latino community. Examine how Latino-owned businesses are thriving and contributing to job creation, innovation, and economic diversification.
4. **Workforce Statistics:** Gain insights into the role of Latino workers in the American labor market. Review statistics on employment rates, occupational distribution, and the economic contributions of Latino professionals across various industries.
5. **Media Consumption:** Understand the media consumption habits of Latino audiences. Discover their preferences for digital platforms, television, radio, and social media. Learn how these consumption patterns are influencing advertising strategies and media content.
6. **Education:** Examine the educational achievements and challenges within the Latino community. Review statistics on enrollment, graduation rates, and fields of study. Understand the implications of education on economic mobility and workforce readiness.
7. **Home Ownership:** Explore trends in Latino home ownership. Understand the factors driving home buying decisions, the challenges faced by Latino homeowners, and the impact of home ownership on community stability and economic growth.
This SlideShare provides valuable insights for marketers, business owners, policymakers, and anyone interested in the economic influence of the Latino community. By understanding the various facets of Latino buying power, you can effectively engage with this dynamic and growing market segment.
Equip yourself with the knowledge to leverage Latino buying power, tap into their entrepreneurial spirit, and connect with their unique cultural and consumer preferences. Drive your business success by embracing the economic potential of Latino consumers.
**Keywords:** Latino buying power, economic impact, entrepreneurial contributions, workforce statistics, media consumption, education, home ownership, Latino market, Hispanic buying power, Latino purchasing power.
Empowering the Unbanked: The Vital Role of NBFCs in Promoting Financial Inclu...Vighnesh Shashtri
In India, financial inclusion remains a critical challenge, with a significant portion of the population still unbanked. Non-Banking Financial Companies (NBFCs) have emerged as key players in bridging this gap by providing financial services to those often overlooked by traditional banking institutions. This article delves into how NBFCs are fostering financial inclusion and empowering the unbanked.
how to sell pi coins effectively (from 50 - 100k pi)DOT TECH
Anywhere in the world, including Africa, America, and Europe, you can sell Pi Network Coins online and receive cash through online payment options.
Pi has not yet been launched on any exchange because we are currently using the confined Mainnet. The planned launch date for Pi is June 28, 2026.
Reselling to investors who want to hold until the mainnet launch in 2026 is currently the sole way to sell.
Consequently, right now. All you need to do is select the right pi network provider.
Who is a pi merchant?
An individual who buys coins from miners on the pi network and resells them to investors hoping to hang onto them until the mainnet is launched is known as a pi merchant.
debuts.
I'll provide you the Telegram username
@Pi_vendor_247
3. Current
Environment
Guidelines for
revenue
recognition
Departures
from sale
basis
Revenue
Recognition at
the Point of Sale
Revenue
Recognition
before Delivery
Revenue
Recognition
after Delivery
Sales with discounts
Sales with right of
return
Sales with buybacks
Bill and sales
Principal-agent
relationships
Trade loading and
channel stuffing
Multiple-Deliverable
Arrangements
Installment-
sales method
Cost-recovery
method
Deposit
method
Summary of
bases
Percentage-of-
completion
method
Completed-
contract
method
Long-term
contract losses
Disclosures
Completion-of-
production
basis
4. A recent survey of financial executives noted that the
revenue recognition process is increasingly :
more complex to manage
prone to error
material to financial statements compared to any
other area in financial reporting.
a top fraud risk
The risk or errors and inaccuracies is significant
5. The revenue recognition principle provides
that companies should recognize revenue
Guidelines for Revenue Recognition
(1) when it is realized or realizable and
(2) when it is earned.
6. Proper revenue recognition revolves around three
terms:
Revenue are realized when-
A company exchanged goods and services for cash or
receivables
Assets a company receives in exchange are readily
convertible to know amounts of cash or claims to cash.
The earning process is completed or virtually complete
7. Four revenue transactions:
• Selling products at the date of sales.
• Services provided, when service have been
performed and are billable.
• Permitting others to use enterprise assets, such as
interest, rent, and royalties
• Disposing of assets
8. Sale of product
from inventory
Type of
Transaction
Rendering
a service
Permitting use
of an asset
Sale of asset
other than
inventory
Date of sale
(date of delivery)
Services
performed and
billable
As time passes
or assets are
used
Date of sale or
trade-in
Gain or loss on
disposition
Revenue from
interest, rents, and
royalties
Revenue from
fees or services
Revenue from
sales
Description
of Revenue
Timing of
Revenue
Recognition
Chapter 18 Chapter 18
Illustration 18-1
Revenue Recognition Classified by Type of
Transaction
9. Earlier recognition is appropriate if there is a
high degree of certainty about the amount of
revenue earned.
Delayed recognition is appropriate if the
degree of uncertainty concerning the
amount of revenue or costs is sufficiently
high or
sale does not represent substantial
completion of the earnings process.
Departures from the Sale Basis
10. Revenue Recognition Alternatives
Illustration 18-2
At the point of
sales (delivery)
“The General Rule”
Before delivery
Before
production
During
production
At
completion
of production
After delivery
As cash is
collected
After costs
are recovered
11. FASB’s Concepts Statement No. 5, companies
usually meet the two conditions for recognizing
revenue (being realized or realizable and being
earned) by the time they deliver products or render
services to customers.
12. Sales with discount
Volume Discount: (Illus: 18-3)
Sansung Company has an arrangement with its
customers that it will provides a 3% volume discount
to its customers if they purchase at least Tk 2 million
of its product during the calendar year. On March
31,2012, Sansung has made sales of Tk.7,00,000 to
Artic Co. In the previous two years, Sansung sold over
Tk.3,000,000 to Artic in the period April 1 to Decmber-
31.
How much revenue should Sansung recognize for the
first three months of 2012?
13. Solution:
On March 31,2012
Accounts Receivable 6,79,000
Sales Revenue 6,79,000
Assuming that Sansung’s customers meet the discount threshold-
Cash 6,79,000
Accounts Receivable 6,79,000
If Sansung’s customers fail to meet the discount threshold,
Cash 7,00,000
Accounts Receivable 6,79,000
Sales Discounts Forfeited 21,000
14. Extended Payment Terms (Illus:18-4)
On July 1, 2012, S Company sold goods to Grant Company for
Tk.9,00,000 in exchange for a 4-year zero-interest-bearing note
in the face amount of Tk.1,416,163. The goods have an
inventory cost on S ‘s books of Tk.5,90,000 .
a) How much revenue should S company record on July 1,
2012
b) How much revenue should it report related to this
transaction on December 31,2012?
15. Solution:
On July 1,2012
Notes Receivable 1,416,163
Sales Revenue 9,00,000
Discount on Notes Receivable 5,16,163
On December 31,2012
Discount on Notes Receivable 54,000
Interest Revenue( 12%x1/2x Tk.9,00,000) 54,000
16. Recognize revenue only if six conditions have
been met.
Sales When Right of Return Exists
1. The seller’s price to the buyer is substantially fixed
or determinable at the date of sale.
2. The buyer has paid the seller, or the buyer is
obligated to pay the seller, and the obligation is not
contingent on resale of the product.
3. The buyer’s obligation to the seller would not be
changed in the event of theft or physical
destruction or damage of the product.
17. 4. The buyer acquiring the product for resale has
economic substance apart from that provided by
the seller.
5. The seller does not have significant obligations for
future performance to directly bring about resale
of the product by the buyer.
6. The seller can reasonably estimate the amount of
future returns.
18. Illus :18-5
Pesido Company sold Tk.3,00,000 of laser
equipment on August 1, 2012, and retains only
an insignificant risk of ownership. On October
15, 2012, Tk.10,000 in equipment was
returned. At December 31, 2012, based on
prior estimated that returns on the remaining
balance will be 4%. Journalize.
19. Pesido makes the following entries:
August 1,2012
Accounts Receivable 3,00,000
Sales Revenue 3,00,000
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
20. When a repurchase agreement exists at a set
price and this price covers all cost of the
inventory plus related holding costs, the
inventory and related liability remain on the
seller’s books. In other words, no sale.
Sales with Buyback Agreements
21. Illus 18-6
Morgan Inc., an equipment dealer, sells
equipment to Lane Company for Tk.1,35,000.
The equipment has a cost of Tk.1,15,000.
Morgans agrees to repurchase the equipment
at the end of 2 years at its fair value. Lane
Company pays full price at the sales date, and
there are no restrictions on the use of the
equipment over the 2 years.
22. When Morgan has transferred risk of ownership:
Cash 1,35,000
Sales Revenue 1,35,000
Cost of Goods Sold 1,15,000
Inventory 1,15,000
23. When Morgan requires Lane to sign a note with
repayment to be made in 24 monthly payments.
Lane is also required to maintain the equipment at a
certain level. Morgan sets the payment schedule
such that it receives a normal lender’s rate of return
on the transaction. In addition, Morgan agree to
repurchase the equipment after 2 years for Tk.
95,000.
24. In this case, this agreement appear to be a financing
transaction rather than a sale. When the seller has retained
the risks and rewards of ownership, even though legal title
has been transferred, the transaction is a financing
arrangement and does not give rise to revenue.
25. Bill and Hold
Buyer is not yet ready to take delivery but does take
title and accept billing. Because of:-
1. Lack of availability space for the product
2. Delays in its production schedule
3. More than sufficient inventory in its distribution
channel.
26. 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.
27. 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.
2. Baristo makes a fixed commitment to purchase the goods,
request that the transaction be on a bill and hold basis, and
sets a fixed delivery date; and
3. Goods must be segregated, complete, and ready for
shipment.
28. Butter makes the following entry to record the bill
and hold sale:
Accounts Receivable 4,50,000
Sales Revenue 4,50,000
29. It is likely that one of the conditions above is
violated ( such as the normal payment terms). In
this case, the most appropriate approach for bill
and hold sales is to defer revenue recognition until
the goods are delivered.
30. Principal-Agent Relationships
Amount collected on behalf of the principal are not revenue of
the agent. Instead, revenue for the agent is the amount of
the commission it receives (usually a percentage of the total
revenue).
Example:
Travel agent & Airline relationship
Consignment
31. Consignment
Under the consignment agreement , the consignor
(manufacturer or wholesaler) ships merchandise to the
consignee (dealer), who is to act as an agent for the
consignor in selling the merchandise.
The consignee does not record the merchandise as an
assets on its books. Upon sale of the merchandise, the
consignee has a liability for the net amount due the
consignor.
The consignor periodically receives from the consignee a
report called account sales that shows the merchandise
received, merchandise sold, expenses chargeable to the
consignment, and the cash remitted. Revenue is then
recognized by the consignor.
32. Illustration 18-8
Nebla Manufacturing Co. ships merchandise costing
Tk.36,000 on consignment to Best Value Store.
Nebla pays Tk.3,750 of freight costs, and Best
Value pays Tk.2,250 for local advertising costs that
are reimbursable from Nebla. By the end of the
period, Best Value, has sold two-thirds of the
consigned merchandise for Tk.40,000 cash. Best
Value notifies Nebla of the sales, retains a 10%
33. Solution
:
Nebla Mfg. Co. (Consignor ) Best Value Stories (Consignee)
Inventory ( Consignments) 36,000
Finished 36,000
No entry
Inventory ( Consignments) 3,750
Cash 3,750
No entry
No entry until notified Receive from Consignor 2,250
Cash 2,250
Payment of advertising by consignee
Payment of freight costs by consignor
Shipment of consigned merchandise.
34. Sale of consigned merchandise.
Cash 40,000
Payable to consignor 40,000
Notification of sales and expenses and remittance of amount due
Cash 33,750
Advertising Expense 2,250
Commission Expense 4,000
Revenue from
Consignment Sales 40,000
Payable to consignor 40,000
Receive from Consignor 2,250
Commission Revenue 4,000
Cash 33,750
Adjustment of inventory on consignment for cost of sales
No entry until notified
Cost of Goods Sold 26,500
Inventory (consignments) 26,500
{2/3(36,000+3,750)}
No entry
Nebla Mfg. Co. (Consignor ) Best Value Stories (Consignee)
35. “Trade loading is a crazy, uneconomic, insidious practice
through which manufacturers—trying to show sales, profits,
and market share they don’t actually have—induce their
wholesale customers, known as the trade, to buy more
product than they can promptly resell.”
Trade Loading and Channel Stuffing
36. Multiple-Deliverable Arrangements (MDAs)
MDAs provide multiple products or services to customers as part of a single
arrangement.
In general, all units in a MDAs are considered separate units of accounting.
Provided that:
1. A delivered item has value to the customer on a standalone basis; and
2. The arrangement includes a general right of return relative to the delivered
items; and
3. Delivery or performance of the undelivered item is considered probable and
substantially in the control of the seller.
The amount paid for the arrangement is allocated among the
separate units based on relative fair value.
37. Chai purchases equipment from Handler for a price of Tk.20,00,000 and chooses
Handler to do the installation. The price of the installation service is estimated to
have a fair value of Tk.20,000. The fair value of the training sessions is estimated at
Tk.50,000.
Chai is obligated to pay Handler the Tk.20,00,000 upon the delivery and installation
of the equipment. Handler delivers the equipment on September 1, 2012, and
completes the installation of the equipment on November 1, 2012. Training related
to the equipment starts once the installation is completed and lasts for 1 year. The
equipment has a useful life of 10 yrs.
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?
c) Give journal entries.
38. Two Methods:
Percentage-of-Completion Method.
Rationale is that the buyer and seller have enforceable
rights.
Completed-Contract Method.
Most notable example is long-term construction
contract accounting.
39. 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.
40. Companies should use the Completed-Contract method
when one of the following conditions applies when:
1. Company has primarily short-term contracts, or
2. Company cannot meet the conditions for using the
percentage-of-completion method, or
3. There are inherent hazards in the contract beyond the
normal, recurring business risks.
41. Measuring the Progress toward Completion
Most popular measure is the cost-to-cost basis.
The percentage that costs incurred bear to total
estimated costs, can be applied to the total revenue
or the estimated total gross profit on the contract.
42. Measuring the Progress toward Completion
Cost-to-cost basis Illustrations 18-3,4,& 5
Costs incurred to date
Most recent estimate of total costs
= Percent complete
Percent complete x Estimated total revenue =
Revenue to
be recognized
to date
Revenue to
be recognized
to date
Current-period
Revenue
-
Revenue
recognized in
prior periods
=
43. Illustration:
Hardhat Construction Company has a contract to
construct a Tk.45,00,000 bridge at an estimated cost
40,00,000. the contract is to start in July 2012, and
the bridge is to be completed in October 2014. the
following data pertain to the construction period.(
Note that by the end of 2013 , Hardhat has revised
the estimated total cost from tk.40,00,000 to
40,50,000.)
44. Hardhat Construction Co.
2012 2013 2014
Cost to date Tk. 10,00,000 Tk. 29,16,000 Tk. 40,50,000
Estimated cost to
complete
30,00,000 11,34,000 -
Progress billings during
the year
9,00,000 24,00,000 12,00,000
Cash collected during the
year
7,50,000 17,50,000 20,00,000
45. 2012 2013 2014
Contract price Tk. 45,00,000 Tk. 45,00,000 Tk. 45,00,000
Less estimated cost:
cost to date 10,00,000 29,16,000 40,50,000
estimated cost to
complete
30,00,000 11,34,000 -
40,00,000 40,50,000 40,50,000
Estimated total gross
profit
5,00,000 4,50,000 4,50,000
Percent complete 25% 72% 100%
46. Construction in progress 10,00,000 19,16,000 11,34,000
Material,Cash,payable etc. 10,00,000 19,16,000 11,34,000
Accounts receivable 9,00,000 24,00,000 180,000
Billings on contruction 9,00,000 24,00,000 180,000
Cash 7,50,000 17,50,000 300,000
Accounts receivable 7,50,000 17,50,000 300,000
Construction in progress 1,25,000 1,99,000 1,26,000
Construction expense 10,00,000 19,16,000 11,34,000
Construction revenue 11,25,000 21,15,000 12,60,000
Billings on construction 45,00,000
Construction in progress 45,00,000
2014
2012 2013
47. Construction in Process
2012 construction costs 10,00,000
2012 recognized gross profit 1,25,000
2013 construction costs 19,16,000
2013 recognized gross profit 1,99,000
2014 construction costs 11,34,000
2014 recognized gross profit 1,26,000
Total 45,00,000
12/31/14 to close
completed project 45,00,000
45,00,000
48. In 2012, its financial statement presentation as follows
HARDHAT CONSTRUCTION COMPANY
Income statement
For the year ended 2012
Revenue from long term contracts
Costs of construction
Gross profit
11,25,000
10,00,000
1,25,000
HARDHAT CONSTRUCTION COMPANY
Balance Sheet
As at 31 december,2012
Current Assets
Accounts Receivable (9,00,000-7,50,000)
Inventory
Construction in Process 11,25,000
less: billings 9,00,000
1,50,000
2,25,000
49. In 2013, its financial statement presentation as follows
HARDHAT CONSTRUCTION COMPANY
Income statement
For the year ended 2013
Revenue from long term contracts
Costs of construction
Gross profit
21,15,000
19,16,000
1,99,000
HARDHAT CONSTRUCTION COMPANY
Balance Sheet
As at 31 december,2013
Current Assets
Accounts Receivable (1,50,000+24,00,000-17,50,000)
Current Liabilities
Billings 33,00,000
Less: Construction in Process 32,40,000
Billing in excess of costs and recognized profits
8,00,000
60,000
50. Companies recognize revenue and gross profit only at point
of sale—that is, when the contract is completed.
Under this method, companies accumulate costs of long-
term contracts in process, but they make no interim charges
or credits to income statement accounts for revenues, costs,
or gross profit.
51. To record cost of contract – same as percentage completion method
To record progress billing - ,,
To record collection - ,,
In 2014 to recognize revenue and cost and to close out the inventory
and billing accounts:
Billing On Construction In Progress 45,00,000
Revenue From Long-term Contract 45,00,000
Cost Of Construction 40,50,000
Construction In Progress 40,50,000
52. HARDHAT CONSTRUCTION COMPANY
Income statement
Revenue from long-term contracts
Costs of construction
Gross profit
2012
-
-
2013
-
-
2014
45,00,000
40,50,000
4,50,000
HARDHAT CONSTRUCTION COMPANY
Balance Sheet
Current Assets
Accounts Receivable
Inventory
Construction in Process 10,00,000
Less: Billing 9,00,000
Cost in excess of billing
Current Liabilities
Billing 33,00,000
Construction in Process 29,16,000
Billing in excess of costs
2012
1,50,000
1,00,000
2013
8,00,000
3,84,000
2014
0
0
0
53. Two Methods:
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.
Loss on an Unprofitable Contract
Under both percentage-of-completion and
completed-contract methods, the company must
recognize in the current period the entire expected
contract loss.
54. Construction contractors should disclosure:
the method of recognizing revenue,
the basis used to classify assets and liabilities as
current (length of the operating cycle),
the basis for recording inventory,
the effects of any revision of estimates,
the amount of backlog on uncompleted contracts, and
the details about receivables.
Disclosures in Financial Statements
55. In certain cases companies recognize revenue at the
completion of production even though no sale has been
made.
Completion-of-Production Basis
Examples are:
precious metals or
agricultural products.
56. When the collection of the sales price is not reasonably
assured and revenue recognition is deferred.
Methods of deferring revenue:
Installment-sales method
Cost-recovery method
Deposit method
Generally
Employed
57. Recognizes income in the periods of collection rather than in
the period of sale.
Recognize both revenues and costs of sales in the period of
sale, but defer gross profit to periods in which cash is
collected.
Selling and administrative expenses are not deferred.
Installment-Sales Method
59. 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)
3. Cost of Installment Sales 1,50,000
Inventory 1,50,000
(To record cost of goods sold on installment in 2012)
4. Installment Sales 2,00,000
Cost of Installment Sales 1,50,000
Deferred gross profit 50,000
(To close installment sales and cost of installment sales)
5. Deferred Gross Profit 15,000
Realized Gross Profit 15,000
( To remove from deferred gross profit the profit realized
through cash collections: 60,000x25%)
6. Realized Gross Profit 15,000
Income Summary 15,000
( To close profit realized by collections)
60. Journal Entries for 2013
1. Installment Accounts Receivable,2013 2,50,000
Installment 2,50,000
(to record sales made on installment in 2013)
2. Cash 2,00,000
Installment Account Receivable,2012 1,00,000
Installment Account Receivable,2013
(To record cash collected on installment receivable)
3. Cost of Installment Sales 1,90,000
Inventory 1,90,000
(To record cost of goods sold on installment in 2013)
4. Installment Sales 2,50,000
Cost of Installment Sales 1,90,000
Deferred gross profit 60,000
(To close installment sales and cost of installment sales)
5. Deferred Gross Profit,2012 25,000
Deferred Gross Profit,2013 24,000
Realized Gross Profit 49,000
( To remove from deferred gross profit the profit realized
through cash collections)
6. Realized Gross Profit 49,000
Income Summary 49,000
( To close profit realized by collections)
61. ADDITIONAL PROBLEMS OF INSTALLMENT-SALES ACCOUNTING
Interest on installment contract
Uncollectible Accounts
Default and repossession
63. Default and repossessions
JOURNAL ENTRIES:
Repossessed Merchandise ( an inventory account) xxxx
Deferred Gross Profit xx
Installment Accounts Receivable xxx
or,
Repossessed Merchandise xxxx
Deferred Gross Profit xxxx
Loss on Repossession xxxx
Installment Accounts Receivable xxxx
64. Recognizes no profit until cash payments by the buyer
exceed the cost of the merchandise sold.
Cost-Recovery Method
65. Illustration:
Early in 2012, Fesmire Manufacturing sells inventory with a
cost of Tk.25,000 to Highley Company for Tk.36,000.
Highley will make payments of 18,000 in 2012, Tk12,000 in
2013 and Tk.6,000 in 2014. If the cost cost-recovery
method applies to this transaction and Highley makes the
payments as scheduled.
67. Journal entries at the end of 2012 is as follows:
Sales Revenue 36,000
Cost of Sales 25,000
Deferred gross profit 11,000
Journal entries at the end of 2013 is as follows:
Deferred gross profit 5,000
Realized gross profit 5,000
(to recognize gross profit to the extent that
cash collections in 2013exceed costs)
Journal entries at the end of 2014 is as follows:
Deferred gross profit 6,000
Realized gross profit 6,000
(to recognize gross profit to the extent that
cash collections in 2013exceed costs)
68. Seller reports the cash received from the buyer as a
deposit on the contract and classifies it on the balance
sheet as a liability.
The seller does not recognize revenue or income until the
sale is complete.
Deposit Method
71. Assume that Tum’s Pizza Inc. charges an initial franchise fee of
Tk.50,000 for the right to operate as franchisee of Tum’s Pizza.
Of this amount, Tk10,000 is payable when the franchisee signs
the agreement, and the balance is payable in five annual
payments of Tk.8,000 each. In return for the initial franchise
fee, Tum’s will help locate the site, negotiate the lease or
purchase of the site, supervise the construction activity, and
provide the bookkeeping services. The credit rating of the
franchisee indicates that money can be borrowed at 8%. The
present value of an ordinary annuity of five annual receipts of
Tk. 8,000 each discounted at 8% is Tk. 31941.68.
72. 1. If there is reasonable expectation that Tum’s Pizza Inc. may
refund the down payment and if substantial future services
remain to be performed by Tum’s Pizza Inc.
Cash 10,000
Notes Receivable 40,000
Discount on Notes Receivable 8,058.32
Unearned Franchise Fee 41,941.68
73. 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
74. 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
75. 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
76. 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
77. Continuing Franchise Fees
Bargain Purchase
Options To Purchase
Franchisor’s Cost
Disclosures of Franchisors
Editor's Notes
Service Cost - Actuaries compute service cost as the present value of the new benefits earned by employees during the year. Future salary levels considered in calculation.
Interest on Liability - Interest accrues each year on the PBO just as it does on any discounted debt.
Actual Return on Plan Assets - Increase in pension funds from interest, dividends, and realized and unrealized changes in the fair market value of the plan assets.
Amortization of Unrecognized Prior Service Cost - The cost of providing retroactive benefits is allocated to pension expense in the future, specifically to the remaining service-years of the affected employees.
Gain or Loss - Volatility in pension expense can be caused by sudden and large changes in the market value of plan assets and by changes in the projected benefit obligation. Two items comprise the gain or loss:
difference between the actual return and the expected return on plan assets and,
amortization of the unrecognized net gain or loss from previous periods