Chapter 9, Problem 3QE

When it is probable that total contract costs will exceed total contract revenue, how shall it be accounted for? Group of answer choices The expected loss shall be recognized as an expense immediately only when the outcome of a construction contract cannot be estimated reliably. The expected loss shall be recognized as an expense immediately regardless of the certainty or uncertainty of the outcome of a construction contract. The expected loss shall be accounted for based on company’s policy. The expected loss shall be recognized as an expense by reference to the state of completion of the contract activity at the end of the reporting period when the outcome of a construction contract cannot be estimated reliably.      PreviousNext

Which of the following statements is not applicable to contract acquisition costs under ASC Topic 606 guidance for revenue recognition?   Incremental costs of acquiring a contract must be capitalized and amortized over the life of the contract.   Costs that would be incurred regardless of whether a contract is obtained are not capitalized.   The capitalization requirement is subject to a practical expedient.   Costs must be capitalized even if the amortization period is one year or less.

33. Entity A enter into a long-term contract to provide service. The outcome of the transaction can be estimated reliably and the progress on the contract can be measured with sufficient reliability. According to PPSAS, how should entity A recognize revenue from the contract? On a straight-line basis over the contract term By reference to the stage of completion of the contract at the reporting date Full recognition of contract price upon completion of the contract Only to the extent of costs that are expected to be recovered.

One of the more difficult issues that companies face in recognizing revenue is determining the transaction price. In cases where the consideration in a contract includes a variable amount, an entity should estimate the amount of consideration to which it is entitled in exchange for transferring the promised goods or services. Required: Discuss the methods a company may use to estimate variable consideration and the situations in which one method may he preferred over another.

When it is probable that total contract costs will exceed total contract revenue, how shall the long-term contractor account for the difference? The expected loss shall be recognized as an expense taking into account the percentage of completion as of the end of the period. The expected profit shall be recognized as a profit immediately. The expected loss shall be recognized as a profit taking into account the percentage of completion as of the end of the period. The expected loss shall be recognized as an expense immediately

Indicate whether each of the following statements is true or false. Farhgate Inc. should recognize revenue when the performance obligation has been satisfied and when cash is received.  Answer If Massy sells its product but gives the buyer the right to return it, Massy should not recognize revenue until the sale is collected.  Answer If it is difficult to determine the outcome of the contract (estimating costs and determining project revenue), IFRS requires the application of the zero-profit method.  Answer

Under PFRS 15, when shall a consignor recognize revenue from its consignment sales?   When it is probable that future economic benefits will flow to the consignor and the fair value of the revenue can be measured reliably. When the consignor receives cash remittance from the consignee. When the consignor satisfies its performance obligation under consignment contract. When the consignor enters into a consignment contract with a consignee.

This 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 method

The primary issue in the accounting for construction contracts is   the determination of the percentage of completion and revenue to be recognized during the period. the allocation of contract revenue and contract costs to the accounting periods in which construction work is performed. the determination of the rate at which physical performance has been made during the reporting period and the future performance on which future revenues will be allocated. the allocation of costs of a long-lived asset to permit the proper matching of costs with revenues.