According to IAS 18, revenue is defined as “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 participants” (2012).
Generally, revenue is recognized when it is probable and reasonably estimable. While this definition of revenue exists under both methods of accounting, the current revenue requirements in IFRS can be quite difficult to apply to multipart transactions. Because IAS 18 provides very limited guidance on topics like multi-elements arrangements and software recognition revenue, some companies have developed their IFRS accounting policies by referring to parts
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In the Coconut Telegraph case, since one of the criteria mentioned above was met, both the February and May 2012 arrangements should be accounted for as a single transaction. Because that single contract contains various performance obligations, Coconut Telegraph has to allocate the revenue based on the unit’s fair market value of the standalone price (IFRS 15). According to these rules, the prices are allocated in a similar way as presented under GAAP requirements. Thus, for the May agreement, as of April 30, 2012, the amount of recognized revenue totals $10, 429, while the deferred revenue totals $1,429. The balance sheet of May 1, 2012 records a total of $10, 571 cumulative recognized revenues, as well as a total of $5,929 deferred
However, making the purchase before year-end would be unethical and have a significant impact on the Income Statement. The purchase would increase cost of goods sold (COGS) by $200,000, sales revenue on the other hand, would be unaffected. The increase would lower the gross profit. A lower gross profit decreases the amount of income tax, but also lowers net income by $160,000. The impact on the income would result in a lower Net income and a higher cost of goods sold. The retained earnings on the Balance Sheet would decrease. To compare the outcome of each decision (See Summary & Journal). (Accounting Coach COGS and I/S
3. Which of the following is not normally a condition that must be met for revenue to be recognized
In order to determine the value of operations, and using proforma income statement and balance sheet statement, Cash flow statement was formulated for the next 5 years. The Account Receivables plus the Inventory minus the Account Payable was determined as Net Operating Working Assets. An organization cost of 0,000 was amortized over the 5-year period.
b. The amount of molasses and byproduct shipped to seven customers (a majority of which are internal and therefore don't generate profit accounted for in this model).
Plunkett, Linda M., and Robert W. Rouse. "Revenue Recognition and the Bausch and Lomb Case." CPA Journal Sept. 1998: n. pag. CPA Journal. Web. 16 May 2014.
Our reverse income statement starts with a financial requirement to add 5% to CA Technologies’ current net income within two years. With CA Technologies’ current net income of $827 million , our 5% profit addition is equal to $41.35 million, as shown below (Figure 1). Given this, our necessary revenues to generate the required 10% sales margin are $413.5 million and our all...
Financial Accounting Standards Board. (1985). Statement of Financial Accounting Standards No. 86. Norwalk. Retrieved April 7, 2014, from http://www.fasb.org/cs/BlobServer?blobkey=id&blobnocache=true&blobwhere=1175820922177&blobheader=application%2Fpdf&blobheadername2=Content-Length&blobheadername1=Content-Disposition&blobheadervalue2=189998&blobheadervalue1=filename%3Dfas86.pdf&blobcol=url
Transactional Processing The accounting software packages developed and distributed by Sage and Microsoft, respectively, each use their own methods for recording accounting information. Sage 50. There are three different areas that must be discussed. These are the revenue, expenditure, and financing cycles. These areas are written about from the author's own knowledge from using the software, as learned from the book by Carol Yacht (2013).
Under GAAP, revenue recognition is realized when earned, while IAS 18 recognizes only if it’s probable that benefits will flow to the entity and can be measured. Sales of products by Starbuck’s are recognized when the products are received by the manufacture. GAAP provides specific guidance for revenue recognition.
The revenue cycle is known as the process by which healthcare providers receive reimbursement for care provided. Bringing in revenue is necessary for the efficient operation of any healthcare facility. The revenue cycle consist of all the steps involved in patient care starting from bringing in the patient, meeting their needs, and receiving payments for services provided (Gillikin).
FASB Statement of Financial Accounting Concepts (CON) 5, Recognition and Measurement in Financial Statements of Business Enterprises, set forth the historic guiding principle to revenue recognition. Pursuant to paragraph 83, for revenue to be recognized it must be (a) realized or realizable and (b) earned. Revenues are “realized” when products, goods, services, or other assets are exchanged for cash or claims to cash. They are “realizable” when related assets received or held are readily convertible to known amounts of cash or claims of cash. Revenue is “earned” when an entity has “substantially accomplished what it must do to be entitled to the benefits represented by the revenues.” SEC Staff Accounting Bulleting (SAB) 104, Revenue Recognition issued in December 2003 provided additional guidance to when revenue is realized or realizable and earned setting forth four basic criteria: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the seller’s price to the buyer is fixed or determinable, and (4) collectibility is reasonable assured.
Therefore, the amount of profit obtained is somewhat arbitrary. However, cash flow is an objective measure of cash and it is not subjected to a personal criterion. Net cash flow is the difference between cash inflows and cash outflows; that is, the cash received into the business and cash paid out of the business (Fernández, 2006). Whereas, net profit is the figure obtained after expenses or cost of resources used by the business is deducted from revenues generated from the business operations activities. Nonetheless, the figure for revenue and cash are not entirely cash, some of the items may be sold on credit and some of the expenses are not paid up
But, it has to see whether is they having an improvement it’s to sell at a higher value in order to earn more profit in their business or not, if it is to earn more profit in the business then it is business income, other else it’s not business income, it should call capital income. (Alan 2004, p. 295; HM Revenue & Custom et al., 2011)
The main differences between the current U.S. GAAP reporting and IFRS reporting include: revenue recognition, inventory valuation, reporting assets, accrued expenses and the preparation of the statement of cash flows. The IFRS has two primary revenue standards and four revenue focused interpretations for revenue recognition which include the sale of goods, the sale of services, the use of assets, and construction contracts (Kaiser). According to the U.S GAAP, revenue can only be realized or earned, and revenues are only recognized if and only if an exchange transaction takes place. Under the U.S GAAP, a financial entity will record one hundred percent of a sale’s transaction as revenue upon selling a given good...
The statement of profit or loss is also known as income statement and it’s equation is revenue minus expenses equals profit or loss. The statement of profit or loss summarize the revenues and expenses of a business and also shown the ability of a business to generated business. The total profit or loss that generated in an organization during an accounting period can be seen through the income statement. For example, if the expenses of the company are higher than revenues, the company will get a loss in the business. However, the company will generate a profit when the revenues are greater than the