Chapter 18, Problem 1Q

To determine

Revenue recognition: Revenue recognition is an accounting principle that decides the process of determining and accounting for revenue. Revenue on any transaction is recognized on the performance of the obligation.

Capitalized cost: It is an expense which is added to the cost basis (original value for the tax purpose) of the asset in the company’s balance sheet. Instead of being an expense, these costs are recognized as depreciation and amortization.

To determine the current environment regarding revenue recognition.

Explanation of Solution

There are some transactions which are initiated and completed at the same time, which leads to a problem in recognizing the revenue. There are some complex transactions due to which it can be difficult to manage reporting of the transaction, as there can be an error, and is more difficult for the financial statements than any other financial reporting. If we take into account the standards for revenue recognition, there are many standards and a number of comprehensive guidance for reporting the service revenue transactions. FASB and IASB indicate that the present state of reporting revenue is not up to the mark and therefore the board has issued a new standard called “Revenue from Contracts with Customers”. The main objective of this standard is to provide new approaches for how and when the revenues should be reported by the company. Though it is a comprehensive standard and applies to all the existing companies, the enhancement is necessary for comparability and consistency while reporting the revenues.

Conclusion

Reporting revenue is a very complex task due to various reasons. Even though a standard has been issued by the board which is followed by the companies, enhancement is still required for comparability and consistency.