Nama : Halifa Hasna A

NPM : 0320101002

1. Explain the current environment regarding revenue recognition.

Answer :
Most revenue transactions pose few problems for revenue recognition. This is
because, in many cases, the transaction is initiated and completed at the same time.
However, due to the complexity of some transactions, many believe the revenue
recognition process is increasingly complex to manage, more prone to error, and more
material to financial statements compared to any other area of financial reporting. In
addition, even with the many standards, no comprehensive guidance was provided for
service transactions. As a result, the FASB and IASB have indicated that the present
state of reporting for revenue is unsatisfactory and the Boards issued a standard,
"Revenue from Contracts with Customers". This new standard provides a new
approach for how and when companies should report revenue. The standard is
comprehensive and applies to all companies. As a result, comparability and
consistency in reporting revenue should be enhanced.
2. What was viewed as a major criticism of IFRS as it relates to revenue recognition?
Answer :
A major criticism of IFRS regarding revenue recognition is it lacks guidance. IFRS
has only one basic standard on revenue recognition.
3. Describe the revenue recognition principle.
Answer :
The revenue recognition principle is when and how a company recognizes revenue
within periods, basing it off of the contract made between the company and the client.
Revenue is recognized when the performance obligation that has been created by a
contract has been performed and given control to the client. To recognize revenue in
the accounting period when the performance obligation is satisfied.
4. Identify the five steps in the revenue recognition process.
Answer :
- Identifying the contract made with the customer
- Identifying the separate performance obligations
- Determine the transaction price
- Allocating the transaction price to each separate performance obligation
- Recognize revenue when each performance obligation is satisfied.
5. Describe the critical factor in evaluating whether a performance obligation is satisfied.
Answer :
Change in control is the deciding factor in determining when a performance
obligation is satisfied. Control is transferred when the customer has the ability to
direct the use of and obtain substantially all the remaining benefits from the asset or
service. Control is also indicated if the customer has the ability to prevent other
companies from directing the use of, or receiving the benefit, from the asset or
service.
6. When is revenue recognized in the following situations? (a) Revenue from selling
products, (b) revenue from services performed, (c) revenue from permitting others to
use company assets, and (d) revenue from disposing of assets other than products.
Anwer :
Revenue is recognized in situation B, because revenue is only recognized when a
performance obligation has been satisfied, not when a product is sold. The disposing
of assets becomes income, but revenue only happens when a transaction has occurred.
The same thing applies when allowing others to use company assets, that is an
internal control and not a result of a transaction.
7. Explain the importance of a contract in the revenue recognition process.
Answer :
A contract is important in the revenue recognition process because it allows for the
company to be able to recognize whether they have an obligation to perform, and if
they will receive any consideration for it. Revenue is recognized only when a valid
contract exists.
8. On October 10, 2019, Executor SpA entered into a contract with Belisle Inc. to
transfer Executor’s specialty products (sales value of $10.000, cost of $6.500) on
December 15, 2019. Belisle agrees to make a payment of $5.000 upon delivery and
signs a promissory mote to pay the remaining balanve on January 15, 2020. What
entries does Executor make in 2019 on this contract? Ignore time value of money
considerations.
Answer :
No entry is required on October 10, 2019, because neither party has performed on the
contract. That is, neither party has an unconditional right as of October 10, 2019. On
December 15, 2019, Executor delivers the product and therefore should recognize
revenue on that date as it satisfied its performance obligation on that date.

The journal entry to record the sales revenue and related cost of goods sold is as
follows.

December 15, 2019

Notes Receivable 5,000

Cash 5,000
Sales Revenue 10,000

Cost of Goods Sold 6,500

Inventory 6,500
9. What is a performance obligation? Under what conditions does a performance
obligation exist?
Answer :
A performance obligation is a liability that has incurred within a company, which
means the company has to perform this obligation at some point specified, normally
within a contract. It is a promise to transfer a good or service to a customer. A
 promise to provide a product or service to a customer. To determine whether a
performance obligation exists, a company must provide a distinct product or service
to a customer.
10. When must multiple performance obligations in a revenue arrangement be accounted
for separately?
Answer :
Multiple performance obligations must be accounted for in the third step of the
revenue recognition process. That is, after a contract has been confirmed and a
transaction price has been identified, then the next step is to recognize if there is just
one or multiple performance obligations that need to be separated. By separating
multiple obligations, a company can reallocate the revenue from each obligation.
When determining if a performance obligation is a combined item or if there are
different standalone prices.

E18.1 (LO1)
1. The Kawaski Jeep dealership sells both new and used Jeeps. Some of the Jeeps are
used for demonstration purposes; after 6 months, these Jeeps are then sold as used
vehicles. Should Kawaski Jeep record these sales of used Jeeps as revenue or as a
gain?
Answer :
Kawaski should record these sales of used Jeeps as revenue.
2. One of the main indicators of whether control has passed to the customer is whether
revenue has been earned. Is this state-ment correct?
Answer :
Yes it is correct.
3. One of the five steps in determining whether revenue should be recognized is whether
the sale has been realized. Do you agree?
Answer :
Yes
4. One of the criteria that contracts must meet to apply the revenue standard is that
collectibility of the sales price must be reasonably possible. Is this correct?
Answer :
Yes
5. Many believe the distinction between revenue and gains is important in the financial
statements. Given that both revenues and gains increase net income, why is the
distinction important?
Answer :
Revenue is from general business sale, however gain is not from ususal business
operation.