Sao Paulo Trains Inc., incorporated in Brazil, manufactures high-speed trains.In this industry, the time to manufacture products usually exceeds one year.Assume that Sao Paulo Trains recently signed a €8 billion contract to provide 10 new high-speed trains to a customer in the European Union.The customer has paid a deposit of €500 million and will pay the remainder in equal installments over the next four years.When should Sao Paulo Trains recognize the revenue from this contract?

Question

Quizplus · Accepted Answer

Revenue should be recognized using the percentage-of-completion method when the outcome of the contract can be reliably estimated. This means revenue and costs associated with delivering on the contract should be recognized over the contract life, rather than at a specific point in time. Therefore, option B is the best choice as it suggests recognizing revenue over the next four years in equal installments alongside cost recognition.