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The Question is:True or False & Why?: Comparability across companies will be enhanced since ASC 606 provides clear rules, by industry, for when and how to recognize revenue. Why the answer is "false"?

Question

 The Question is:

True or False & Why?: Comparability across companies will be enhanced since ASC 606 provides clear rules, by industry, for when and how to recognize revenue.

 

Why the answer is "false"?

check_circleAnswer
Step 1

ASC606 is the new guideline set up by IASB and FASB together to overcome the disparity in revenue recognition among the various companies in the same industry. This has led to the difficulty in comparing the financial statement of various companies by the investors and the third party.

Step 2

The new standard ASC606 aims at recognizing the revenue based on a 5 step model.

 

  • Identifying the contract.
  • Identifying the separate performance obligations in the contract.
  • Determining the transaction price.
  • Allocating the transaction price to separate performance obligations.
  • Recognising the revenue on the satisfaction of the performance obligation.

These are the guiding principles for recognizing any revenue under the ASC 606.

Step 3

The given statement is a false statement. The ASC606 aims at bringing upon uniformity among the companies of the same industries by setting up a few guidelines and also in a step wise process.

 

But it does not specify when all companies must necessarily recognize the revenue. For example Company L and Company FP both are toys manufacturers. Company L may enter into a contract with a performance obligation ena...

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