Question 1

Where the percentage-of-completion method is based on costs,costs that relate to the contract activity generally and are not normally related to specific contracts,such as finance costs,should be allocated across the projects currently in progress.

Accepted Answer

Under the percentage-of-completion method, costs that are general and administrative in nature or cannot be directly linked to a specific contract, such as finance costs, are typically not allocated to individual projects but are expensed as incurred.

Question 2

Revenue recognition under IASB (2011)Revenue from Contracts with Customers requires that:

Accepted Answer

The IASB's revenue recognition standard focuses on the transfer of control of goods and services to the customer, rather than the transfer of risks and rewards or managerial involvement.

Question 3

When it is probable that total contract costs will exceed total contract revenue,the expected loss should not be recognised as an expense until the future economic sacrifice eventuates.

Accepted Answer

According to accounting standards such as IFRS and GAAP, when it is probable that total contract costs will exceed total contract revenue, the expected loss should be recognized immediately as an expense, not delayed until the loss eventuates.

Question 4

Gains must be reported net of related expenses.

Accepted Answer

The answer of Gains must be reported net of related...

Question 5

Accounting standards require that the provision for doubtful debts should be shown as a deduction from the class of assets to which it relates.The net expense in relation to bad and doubtful debts must also be disclosed.

Accepted Answer

This statement is true as per the accounting standards. The provision for doubtful debts should be deducted from the accounts receivable (assets) in the balance sheet and the net expense relating to bad and doubtful debts should be disclosed in the income statement.

Question 6

Gains never arise from the ordinary activities of an entity.

Accepted Answer

Gains can arise from the ordinary activities of an entity. For example, a company that sells products can make a gain from selling more products than expected or from selling them at a higher price than anticipated.

Question 7

If the borrower prepays interest,the inflow of future economic benefits represented by the prepayment would not constitute an item of revenue to the lender because the lender has a present obligation to the borrower to provide finance for the period to which the prepayment relates.

Accepted Answer

If the borrower prepays interest, it means that they are paying the interest expense upfront, thus the lender has a present obligation to provide finance for the period to which the prepayment relates. As a result, the inflow of future economic benefits represented by the prepayment would not constitute an item of revenue to the lender.

Question 8

Transfer of 'control' of the asset is central to the recognition of revenue under the new accounting standard IASB (2011)Revenue from Contracts with Customers.

Accepted Answer

The transfer of control of the asset is a key factor in determining when revenue should be recognized under IASB (2011)Revenue from Contracts with Customers. This is in contrast to previous accounting standards that focused more on the transfer of risks and rewards. Under the new standard, revenue should be recognized when control of the asset has been transferred, indicating that the customer has the ability to direct the use of and obtain the benefits of the asset.

Question 9

Interest revenue is derived from borrowing resources from another entity.

Accepted Answer

Interest revenue is earned by lending resources to another entity, not borrowing. When an entity borrows resources, they typically incur interest expense.

Question 10

Revenues may be generated by:

Accepted Answer

Revenues can be generated by holding and disposing of inventory in the normal course of business, having a liability forgiven, and receiving a donation. Therefore, all the given answers are correct.

Question 11

The following is a diagram of the earnings cycle as presented by Coombes and Martin (1982).  Because of uncertainty and depending on which measurement model is being applied,revenue recognition will take place at a limited number of points in the earnings cycle.In traditional historical-cost accounting,in most cases,at which point in the cycle above have revenues been recognised?

Accepted Answer

The answer of The following is a diagram of the...

Question 12

The general rule under modified historical-cost accounting is that holding gains on non-current assets should be:

Accepted Answer

Under modified historical-cost accounting, holding gains on non-current assets are typically recognised as part of income and hence, of total comprehensive income. This approach reflects the increase in the economic benefits associated with the asset.

Question 13

The following is a diagram of the earnings cycle as presented by Coombes and Martin (1982).  In the traditional historical-cost accounting model,at what point has revenue been recognised for long-term construction contracts in the building industry?

Accepted Answer

The answer of The following is a diagram of the...

Question 14

When making a provision for doubtful debts,debtors' subsidiary ledgers are not adjusted,as the provision is made in anticipation of likely non-recoverability of amounts owing,although the identity of who will not pay is unknown.

Accepted Answer

This is true as the provision is made based on the likelihood of non-recoverability and not on individual debtor's accounts. Adjustments to the subsidiary ledgers are only made once a specific debt is identified as uncollectible.

Question 15

Under the IASB Conceptual Framework income is now subdivided into:

Accepted Answer

Under the IASB Conceptual Framework, income is subdivided into two elements: revenues and gains. Revenues arise in the course of the ordinary activities of an entity, while gains may or may not arise in the course of ordinary activities. This subdivision is important because it helps users of financial statements to understand the nature and sources of an entity's income. Choice A is incorrect because gains are not the same as revenues. Choice B is incorrect because revenues can arise from sources other than ordinary activities. Choice D is incorrect because increases in equity and reductions in liabilities do not correspond to gains and revenues, respectively.

Question 16

IASB (2011)Revenue from Contracts with Customers requires revenues to be measured in terms of historical cost to improve reliability.

Accepted Answer

The IASB Revenue from Contracts with Customers standard does not require revenues to be measured in terms of historical cost. Instead, it requires revenues to be measured at the fair value of the consideration received or receivable, net of discounts and taxes. This is intended to reflect the amount of revenue that an entity expects to receive for transferring goods or services to a customer.

Question 17

Unearned revenues are assets treated as liabilities,as these are received by a business for services to be performed at a future date.

Accepted Answer

Unearned revenues are considered liabilities because they represent an obligation for the business to perform a service or deliver a product in the future. Despite being classified as liabilities, unearned revenues are still considered assets for the business until the service or product is provided.

Question 18

If a company sells its product but gives the buyer the right to return the product,IASB (2011)Revenue from Contracts with Customers requires revenue from the sales transaction to be recognised at the time of sale.

Accepted Answer

According to IASB (2011) Revenue from Contracts with Customers, revenue from a sales transaction where the buyer has the right to return the product should only be recognised once it can be reasonably assured that the buyer will not exercise their right to return, which is typically after the return period has expired. Therefore, revenue cannot be recognised at the time of sale.

Question 19

With the percentage-of-completion method of accounting for construction contracts,profit is recognised in proportion to the work performed in each reporting period.

Accepted Answer

The percentage-of-completion method of accounting for construction contracts recognizes profit in proportion to the work performed in each reporting period.

Question 20

The following is a diagram of the earnings cycle as presented by Coombes and Martin (1982).  For products such as precious metals or agricultural products revenue is recognised at which point in the earnings cycle shown above?

Accepted Answer

The answer of The following is a diagram of the...

Quiz 13: Revenue Recognition Issues

Where the percentage-of-completion method is based on costs,costs that relate to the contract activity generally and are not normally related to specific contracts,such as finance costs,should be allocated across the projects currently in progress.

Revenue recognition under IASB (2011) Revenue from Contracts with Customers requires that:

When it is probable that total contract costs will exceed total contract revenue,the expected loss should not be recognised as an expense until the future economic sacrifice eventuates.

Gains must be reported net of related expenses.

Accounting standards require that the provision for doubtful debts should be shown as a deduction from the class of assets to which it relates.The net expense in relation to bad and doubtful debts must also be disclosed.

Gains never arise from the ordinary activities of an entity.

If the borrower prepays interest,the inflow of future economic benefits represented by the prepayment would not constitute an item of revenue to the lender because the lender has a present obligation to the borrower to provide finance for the period to which the prepayment relates.

Transfer of 'control' of the asset is central to the recognition of revenue under the new accounting standard IASB (2011)Revenue from Contracts with Customers.

Interest revenue is derived from borrowing resources from another entity.

Revenues may be generated by:

The general rule under modified historical-cost accounting is that holding gains on non-current assets should be:

The following is a diagram of the earnings cycle as presented by Coombes and Martin (1982) . In the traditional historical-cost accounting model,at what point has revenue been recognised for long-term construction contracts in the building industry?

When making a provision for doubtful debts,debtors' subsidiary ledgers are not adjusted,as the provision is made in anticipation of likely non-recoverability of amounts owing,although the identity of who will not pay is unknown.

Under the IASB Conceptual Framework income is now subdivided into:

IASB (2011)Revenue from Contracts with Customers requires revenues to be measured in terms of historical cost to improve reliability.

Unearned revenues are assets treated as liabilities,as these are received by a business for services to be performed at a future date.

If a company sells its product but gives the buyer the right to return the product,IASB (2011)Revenue from Contracts with Customers requires revenue from the sales transaction to be recognised at the time of sale.

With the percentage-of-completion method of accounting for construction contracts,profit is recognised in proportion to the work performed in each reporting period.

The following is a diagram of the earnings cycle as presented by Coombes and Martin (1982) . For products such as precious metals or agricultural products revenue is recognised at which point in the earnings cycle shown above?