Accrual basis of accounting: Accrual basis of accounting means the revenues, and their related expenses of the business are reported during the period in which the event occurs, even if the cash is not exchanged. The revenue recognition principle The revenue recognition principle refers to the revenue that should be recognized in the time period, when the performance obligation (sales or services) is completed by the company. To describe: The four most common revenue-recognition abuses identified by auditors.

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Answer 1

Question

Chapter 6, Problem 6.1DMP

Requirement – 1

To determine

Accrual basis of accounting:

Accrual basis of accounting means the revenues, and their related expenses of the business are reported during the period in which the event occurs, even if the cash is not exchanged.

The revenue recognition principle

The revenue recognition principle refers to the revenue that should be recognized in the time period, when the performance obligation (sales or services) is completed by the company.

To describe: The four most common revenue-recognition abuses identified by auditors.

Requirement – 2

To determine

To describe: The revenue-recognition abuse related to the percentage-of-completion method.

Requirement – 3

To determine

To describe: The reasons forrevenue-recognition abuses which tend to increase or decrease net income in the year.

Requirement – 4

To determine

To describe: The adjustment that reduced the revenue-recognition abuses.

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KIARA LIMITED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER: ASSETS Property, plant and equipment (cost) Accumulated depreciation Long-term investments Inventory Accounts receivable Company tax paid in advance Bank EQUITY AND LIABILITIES 2024 2023 R R 2 490 000 1 620 000 (630 000) 660 000 1 050 000 1 230 000 30 000 (480 000) 450 000 1 290 000 900 000 0 750 000 660 000 5 580 000 4 440 000 Ordinary share capital 2 700 000 2 000 000 Retained income 1 500 000 1 158 000 Long-term loan from Kip Bank (15%) 900 000 1 000 000 Accounts payable 480 000 228 000 Company tax payable 0 54 000 5 580 000 4 440 000 ADDITIONAL INFORMATION All purchases and sales are on credit. Interim dividends paid during the year amounted to R150 750. Credit terms of 3/10 net 60 days are granted by creditors.

Accounting Question

REQUIRED Study the information given below and answer the following questions. Where discount factors are required use only the four decimals present value tables that appear after the formula sheet or in the module guide. Ignore taxes. 5.1 Calculate the Accounting Rate of Return on average investment of the second alternative (expressed to two decimal places). 5.2 Determine which of the two investment opportunities the company should choose by calculating the Net Present Value of each alternative. Your answer must include the calculation of the present values and NPV. 5.3 Calculate the Internal Rate of Return of the first alterative (expressed to two decimal places). Your answer must include two net present value calculations (using consecutive rates/percentages) and interpolation. INFORMATION The management of Bentall Incorporated is considering two investment opportunities: (5 marks) (9 marks) (6 marks) The first alternative involves the purchase of a new machine for R900 000 which…

Answer 2

Question

Chapter 6, Problem 6.1DMP

Requirement – 1

To determine

Accrual basis of accounting:

Accrual basis of accounting means the revenues, and their related expenses of the business are reported during the period in which the event occurs, even if the cash is not exchanged.

The revenue recognition principle

The revenue recognition principle refers to the revenue that should be recognized in the time period, when the performance obligation (sales or services) is completed by the company.

To describe: The four most common revenue-recognition abuses identified by auditors.

Requirement – 2

To determine

To describe: The revenue-recognition abuse related to the percentage-of-completion method.

Requirement – 3

To determine

To describe: The reasons forrevenue-recognition abuses which tend to increase or decrease net income in the year.

Requirement – 4

To determine

To describe: The adjustment that reduced the revenue-recognition abuses.

Expert Solution & Answer

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Answer 3

Question

Chapter 6, Problem 6.1DMP

Requirement – 1

To determine

Accrual basis of accounting:

Accrual basis of accounting means the revenues, and their related expenses of the business are reported during the period in which the event occurs, even if the cash is not exchanged.

The revenue recognition principle

The revenue recognition principle refers to the revenue that should be recognized in the time period, when the performance obligation (sales or services) is completed by the company.

To describe: The four most common revenue-recognition abuses identified by auditors.

Requirement – 2

To determine

To describe: The revenue-recognition abuse related to the percentage-of-completion method.

Requirement – 3

To determine

To describe: The reasons forrevenue-recognition abuses which tend to increase or decrease net income in the year.

Requirement – 4

To determine

To describe: The adjustment that reduced the revenue-recognition abuses.

Expert Solution & Answer

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Answer 4

Question

Chapter 6, Problem 6.1DMP

Requirement – 1

To determine

Accrual basis of accounting:

Accrual basis of accounting means the revenues, and their related expenses of the business are reported during the period in which the event occurs, even if the cash is not exchanged.

The revenue recognition principle

The revenue recognition principle refers to the revenue that should be recognized in the time period, when the performance obligation (sales or services) is completed by the company.

To describe: The four most common revenue-recognition abuses identified by auditors.

Requirement – 2

To determine

To describe: The revenue-recognition abuse related to the percentage-of-completion method.

Requirement – 3

To determine

To describe: The reasons forrevenue-recognition abuses which tend to increase or decrease net income in the year.

Requirement – 4

To determine

To describe: The adjustment that reduced the revenue-recognition abuses.

Expert Solution & Answer

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Answer 5

Chapter 6, Problem 6.1DMP

Requirement – 1

To determine

Accrual basis of accounting:

Accrual basis of accounting means the revenues, and their related expenses of the business are reported during the period in which the event occurs, even if the cash is not exchanged.

The revenue recognition principle

The revenue recognition principle refers to the revenue that should be recognized in the time period, when the performance obligation (sales or services) is completed by the company.

To describe: The four most common revenue-recognition abuses identified by auditors.

Requirement – 2

To determine

To describe: The revenue-recognition abuse related to the percentage-of-completion method.

Requirement – 3

To determine

To describe: The reasons forrevenue-recognition abuses which tend to increase or decrease net income in the year.

Requirement – 4

To determine

To describe: The adjustment that reduced the revenue-recognition abuses.

Answer 6

Chapter 6, Problem 6.1DMP

Requirement – 1

To determine

Accrual basis of accounting:

Accrual basis of accounting means the revenues, and their related expenses of the business are reported during the period in which the event occurs, even if the cash is not exchanged.

The revenue recognition principle

The revenue recognition principle refers to the revenue that should be recognized in the time period, when the performance obligation (sales or services) is completed by the company.

To describe: The four most common revenue-recognition abuses identified by auditors.

Answer 7

Chapter 6, Problem 6.1DMP

Requirement – 1

To determine

Accrual basis of accounting:

Accrual basis of accounting means the revenues, and their related expenses of the business are reported during the period in which the event occurs, even if the cash is not exchanged.

The revenue recognition principle

The revenue recognition principle refers to the revenue that should be recognized in the time period, when the performance obligation (sales or services) is completed by the company.

To describe: The four most common revenue-recognition abuses identified by auditors.

Answer 8

Requirement – 2

To determine

To describe: The revenue-recognition abuse related to the percentage-of-completion method.

Answer 9

Requirement – 2

To determine

To describe: The revenue-recognition abuse related to the percentage-of-completion method.

Answer 10

Requirement – 3

To determine

To describe: The reasons forrevenue-recognition abuses which tend to increase or decrease net income in the year.

Answer 11

Requirement – 3

To determine

To describe: The reasons forrevenue-recognition abuses which tend to increase or decrease net income in the year.

Answer 12

Requirement – 4

To determine

To describe: The adjustment that reduced the revenue-recognition abuses.

Answer 13

Requirement – 4

To determine

To describe: The adjustment that reduced the revenue-recognition abuses.

Answer 14

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Answer 15

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Answer 16

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Answer 17

Ch. 6 - What are the five key steps a company follows to...Ch. 6 - What indicators suggest that a performance...Ch. 6 - What criteria determine whether a company can...Ch. 6 - We recognize service revenue either at one point...Ch. 6 - What characteristics make a good or service a...Ch. 6 - Prob. 6.6Q Ch. 6 - What must a contract include for the contract to...Ch. 6 - How might the definition of probable affect...Ch. 6 - When a contract includes an option to buy...Ch. 6 - Prob. 6.10Q

Solution Summary: The author explains the four most common revenue-recognition abuses identified by auditors.

To describe: The revenue-recognition abuse related to the percentage-of-completion method.

To describe: The reasons forrevenue-recognition abuses which tend to increase or decrease net income in the year.

To describe: The adjustment that reduced the revenue-recognition abuses.

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Chapter 6 Solutions