Intermediate Accounting
1st Edition
ISBN: 9780132162302
Author: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 8, Problem 1BCC
Basis for Conclusions Case 1: Control
According to ASC 606, an entity should recognize revenue when goods or services are transferred to a customer. Goods and services are transferred to a customer when the customer obtains control. Refer to the Basis for Conclusions section of ASU 2014-09 to answer the following questions.
- 1. In considering a control-based model for revenue recognition, FASB could have specified that goods and services are considered to be transferred when the seller gives up control as opposed to when the customer receives control. Are these two concepts always the same? If not, why did FASB choose to specify that the transfer occurs when the customer obtains control?
- 2. Is the control-based approach to revenue recognition new to ASU 2014-09, or has revenue always been recognized when control is transferred? What other approach(s) did FASB consider, and why did it choose the control model?
- 3. Control is defined by FASB as the ability to direct the use of and obtain substantially all of the remaining benefits from the asset. Briefly, and in your own words, describe and explain each component of this definition.
- 4. There was some disagreement by respondents to the Exposure Draft of ASU 2014-09 about using the notion of transfer of control to determine when revenue should be recognized. The respondents generally fen that the control model would work well for the sale of goods. However, some respondents felt that this model might not work as well for other types of transactions. What type of transactions were the respondents worried about? Why did they think the control model would not work as well for these transactions? How did these respondents think FASB should address this concern? What did FASB choose to do and why?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
According to PAS 18 Revenue, which of the following is not a criterionto be satisfied before revenue from the sale of goods should be recognized inprofit or loss?a. Revenue can be reliably measuredb.Control over the goods sold has been relinquished but managementmaintainscontinuing involvement over the goods soldc. C The risks and rewards of ownership has been transferred to the buyerd. D The outcome of the transaction is probable
Define ‘control’ and state what would be the acceptable indicators for the transfer of control from the seller to the customer when the performance obligation is satisfied at a point in time according to IFRS 15-Revenue from Contracts with Customers.
According to Topic 606, in order to have a contract with a customer on which revenue should be recognized, collectability must be:
O a. Remote.
b. Possible.
c. Probable.
Od. Uncertain,
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- The table below shows the financial process with corresponding significant account and relevant assertions. Each financial process shows what could go wrong (WCGW). Identify the relevant control to address each WCGW. Answers should be in not less than three sentences. Significant account and Relevant control to Financial Process What Could Go Wrong relevant assertion(s) address WCGW Purchase order is inappropriate because: the purchase order does not match a valid requisition; Purchases Trade accounts payable (EA) purchase is at incorrect price; or an inappropriate or authorized vendor is selected. Plant, equipment and leasehold Errors are made in the capitalization of fixed assets because: Property, plant and improvement, net (EAO) inappropriate items are capitalized; items are capitalized at equipment Land and Building, net (EAO) an inappropriate amount; or additions are not recorded. Answer with text and/or attachments:arrow_forwardWith regard to segregation of duties, rule one is that transaction authorization and transaction processing should be separated. What does this require in the revenue cycle? Please answer this. Thank youarrow_forwardUnder ASC Topic 606 for revenue recognition, which of the following factors is not an indicator of the principal/agent determination? A. Inventory risk. B. Credit risk. C. Shipping terms.arrow_forward
- In accordance with IFRS 15, customer loyalty awards on the goods or services sold, the transaction price received or receivable by the entity must be allocated between the goods or services sold and the customer loyalty awards redeemable in the future partly as revenue and partly as a liability. must be recognized in full as a liability. must be recognized in full as revenue. must be recognized in full as an expense.arrow_forwardWhich of the following conditions would support recognition of revenue? The seller’s price to the buyer is being negotiated. Delivery has occurred or services have been provided. Collection is possible. Significant risks and rewards of ownership of the goods will soon be transferred to the purchaser by the seller.arrow_forwardWhich of the following conditions would violate the revenue recognition principle? Revenue is recognized when related costs can reliably be measured. Revenue is recognized when delivery has occurred or services have been provided. Revenue is recognized when collection is possible. Revenue is recognized when the seller’s price to the buyer is fixed and determinable.arrow_forward
- Discuss and outline the requirements for "revenue recognition principles". What do you think the standard is designed to achieve? In your opinion is there any gap that the standard setter has not fully addressedarrow_forwardFor sellers of goods, the revenue recognition principle generally requires that revenues be recorded when the following conditions are met: The item is manufactured When the goods are received by the buy The sales order is received ● When title and risks of ownership pass to the buyer.arrow_forwardRevenue should be recognized at a single point in time when control of a good or service is transferredto the customer on a specific date. Indicators that transfer has occurred and that revenue should be recognized include the seller having the right to receive payment, the customer having legal title and physicalpossession of the asset, the customer formally accepting the asset, and the customer assuming the risksand rewards of ownershiparrow_forward
- True or False According to PFRS 15, if an entity expects that a portion of giftcertificates sold will not be redeemed, the entity recognizes theexpected breakage amount as revenue in proportion to the pattern of rights exercised by customerarrow_forwardBefore revenue can be recognized, the revenue recognition principle requires the _____. A. Product to be shipped B. Cash to be transferred C. Service to be booked D. Performance obligation be fulfillarrow_forwardAt which points in the revenue cycle are independent verification controls necessary?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Auditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage Learning
Auditing: A Risk Based-Approach (MindTap Course L...
Accounting
ISBN:9781337619455
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:Cengage Learning
Revenue recognition explained; Author: The Finance Storyteller;https://www.youtube.com/watch?v=816Q6pOaGv4;License: Standard Youtube License