Revenue recognition: GAAP (Generally accepted accounting principle) states that under specific conditions only the revenue is recognized and accounted for. Contract assets: When the right to payment is based on factors other than passage of time and the goods are already transferred. Contract liabilities: An entity’s obligation to transfer the product or services to the customer before the consideration is prepaid by the customer or the time that the customer’s consideration is due for products or services will be yet provided by the entity. (a) To describe: To describe the revenue recognition step.

Question

What percentage of RBC’s total assets is held in investments (at October 31, 2020 and 2019)? refer to the 2020 financial statements and accompanying notes of Royal Bank of Canada (RBC). Note that RBC also holds a significant loan portfolio. What is the business reason for holding loans versus securities? Comment on how the investments are classified and presented on the balance sheet. What percentage of total interest income comes from securities (2020 and 2019)? Are there any other lines on the income statement or in OCI) relating to the securities? What percentage of net income (include any relevant OCI items) relates to securities (2020 versus 2019)? Calculate an approximate return on the investments in securities.

Answer 1

Question

Chapter 18, Problem 1CA

To determine

Revenue recognition: GAAP (Generally accepted accounting principle) states that under specific conditions only the revenue is recognized and accounted for.

Contract assets: When the right to payment is based on factors other than passage of time and the goods are already transferred.

Contract liabilities: An entity’s obligation to transfer the product or services to the customer before the consideration is prepaid by the customer or the time that the customer’s consideration is due for products or services will be yet provided by the entity.

(a)

To describe: To describe the revenue recognition step.

To determine

(b)

To explain: To explain the importance of contracts in revenue recognition.

To determine

(c)

To explain: To explain the fair value measurement concepts applied in implementation of the five-step process.

To determine

(d)

To determine how to apply accounting definitions in this process.

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