Concept explainers
International Financial Reporting Standards
They are commonly known as IFRS. These are set of accounting standards which are developed by independent (Non-profit) organization called as International Accounting Standards Board (IASB). These are universally accepted set of standards which state the rules and standards for accounting at global level.
Revenue recognized point of long term contract
A long-term contract qualifies for revenue recognition over time. The seller can recognize the revenue as per percentage of the completion of the project, which is recognized as revenue minus cost of completion until date.
If a contract does not meet the performance obligation norm, then the seller cannot recognize the revenue till the project is complete.
Cost recovery method:
Under the cost recovery method, gross profit is recognized when the cost of the sales is recovered. Where there is an extremely high degree of uncertainty in the installment sales, then this method can be used.
To determine: The amount of revenue, cost and gross profit or loss to be recognized in each of the three years under IFRS, assume the using of percentage-of-completion method is not appropriate (Cost recovery method).
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INTERMEDIATE ACCOUNTING V1 330 6/16 >C
- 15 When it is probable that total contract costs will exceed total contract revenue, how shall the long-term contractor account for the difference? Group of answer choices a. The expected profit shall be recognized as a profit immediately. b. The expected loss shall be recognized as an expense taking into account the percentage of completion as of the end of the period. c. The expected loss shall be recognized as a profit taking into account the percentage of completion as of the end of the period. d. The expected loss shall be recognized as an expense immediately.arrow_forwardExplain how to account for revenue on a long-term contract over time as opposed to at a point in time. Under what circumstances should revenue be recognized at the point in time a contract is completed?arrow_forwardWhen is an estimated loss on a long-term contract recognized, both for contracts that recognize revenue over time and those that recognize revenue at the point in time the contract is completed?arrow_forward
- If the outcome of a long-term contract can be measured reliably, the preferred accounting method under both IFRS and US GAAP is: C . the percentage-of-completion method.arrow_forwardThis revenue recognition method usually applies to long-term construction contracts where the amount of revenue recognized is related to the progress of the work completed. O Franchise agreement O Installment method O Percentage-of-completion method O Consignment methodarrow_forwardRefer to the information provided in E19-13. Required: Using the years-of-future-service method, prepare a set of schedules to determine (1) the amortization fraction for each year and (2) the amortization of the prior service cost.arrow_forward
- Any anticipated loss should be recognized * A.on a percentage basis during the contract period B. when all costs are recognized C.in the future D.in the period it is determinedarrow_forwardListed below are 15 terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the correct term. TERM 1. Interest expense 2. Disclosure only 3. Lessor's gross investment 4. Lessee's lease payments 5. Lessor's net investment 6. Initial direct costs 7. Operating lease 8. Bargain purchase option 9. Depreciable assets 10. Loss to lessee PHRASE Periodic rent payments plus excess guaranteed residual value. Deducted in lessor's computation of lease payments. Leasehold improvements. Cash paid to satisfy residual value guarantee. Sales-type lease selling expense. Depreciation longer than lease term. Sale-leaseback as operating lease. PV of lease payments plus PV of residual value. Future lease payments in each of the next five years. Periodic rent payments plus residual value. Lease payments plus guaranteed residual value. 11. Finance lease expense 12. PV of bargain purchase option price 13. Title transfers to lessee Nonlease payments. 14. Loan…arrow_forwardIn accounting for a long-term construction contract using the percentage of completion method, the progress billings on contract account is a * A. noncurrent liability B. revenue account C. contra noncurrent liability D.contra current asset accountarrow_forward
- Under the completed-contract method, Question 16 options: a revenue, cost, and gross profit are recognized at the time the contract is completed. b revenue and cost are recognized during the production cycle, but gross profit recognition is deferred until the contract is completed. c revenue, cost, and gross profit are recognized during the production cycle. d None of these answers are correct.arrow_forwardIf the outcome of a long-term contract can be measured reliably, the preferred accounting method under both IFRS and US GAAP is: B . the completed contract methodarrow_forwardIf the outcome of a long-term contract can be measured reliably, the preferred accounting method under both IFRS and US GAAP is: A . the cost recovery method.arrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage LearningFinancial Reporting, Financial Statement Analysis...FinanceISBN:9781285190907Author:James M. Wahlen, Stephen P. Baginski, Mark BradshawPublisher:Cengage Learning