GROUP ASSIGNMENT 1

FINANCIAL REPORT AND CONTROL

SINDIKAT 1 YP68C
Nabilla Putri Nofela 29122301
Moh Akhim Bayu Habsoro 29122322
Owen Jacob Notonugroho 29122354
Nabilla Vynka Fakhira 29122359

1) Financial Statement Analysis Case

a) Briefly discuss how Nokia’s revenue recognition policies are consistent with the
revenue recognition principle. Evaluate both: 1. Sales. 2. Revenue from contracts.
i) Sales :
In order for revenue recognition policies to be consistent with the revenue
recognition principle for sales, Nokia’s company must recognize revenue when
control of a product is booked or transferred to customers. The product has a
value in revenue recognition when the product has shipped or transferred to
customer. Nokia’s company should to have a fair value about the products and
services to determine the amount of revenue to be recognized. Other than that,
there are two conditions to decide decision about Nokia’s revenue recognition.
First is about the payment before the product established, the Nokia’s revenue
recognition has to be done when the contract consist the down payment and also
the product has paid before the project finished. The second option is the
payment after the product transferred to customer, Nokia’s revenue recognition
is recognized when the product shipped or booked and then the payment is
accordance to the contract.
ii) Revenue from contracts
Revenue from contracts: In order for revenue recognition policies to be
consistent with the revenue recognition principle for revenue from contracts,
the company must recognize revenue when control of a product or service is
transferred to the customer. This means that revenue should be recognized when
delivery has occurred, when services have been performed, or when other
performance milestones have been met. The company should also use
estimates, such as the fair value of a product or service, to determine the amount
of revenue to be recognized. Additionally, for revenue from contracts, the
company should use the five steps of the new revenue recognition standard
(ASC 606) which are: identify the contract, identify the performance
obligations, determine the transaction price, allocate the transaction price to the
performance obligations and recognize revenue when a performance obligation
is satisfied

b) Briefly discuss how estimates inherent in Nokia’s revenue recognition policies can
result in reported revenue numbers that are not relevant and faithful representations.
i) revenue recognition policies often involve estimates of when revenue can be
recognized, such as when a product is delivered or when a service is performed.
These estimates can be subject to significant uncertainty and may not accurately
reflect the timing of when revenue was earned
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FINANCIAL REPORT AND CONTROL

ii) revenue recognition policies may also involve estimates of the amount of
revenue to be recognized, such as the fair value of a product or service. These
estimates can also be subject to significant uncertainty and may not accurately
reflect the true value of the revenue earned.
iii) if the company uses aggressive revenue recognition policies, it may report
revenue in earlier periods than it would have under more conservative policies,
which could lead to overstatement of revenue and earnings in those periods.
This can create an impression of artificially inflated financial performance,
which is not a relevant or faithful representation of the company's actual
financial performance.

c) Assume that Nokia’s competitors use similar revenue recognition policies for their
sales. What are some of the judgments inherent in applying those policies that could
raise concerns with respect to the qualitative characteristic of comparability?
i) Identifying the performance obligations: Companies must identify the specific
performance obligations in a contract with a customer. Different companies
may have different interpretations of what constitutes a performance obligation,
leading to variations in the timing and amount of revenue recognized
ii) Allocating the transaction price: Companies must allocate the transaction price
to the identified performance obligations. Different companies may use
different methods of allocation, leading to variations in the timing and amount
of revenue recognized.
iii) Determining the transaction price: Companies must determine the transaction
price, which may include estimates of variable consideration such as discounts,
rebates, or returns. Different companies may use different methods or
assumptions, leading to variations in the timing and amount of revenue
recognized.
iv) Recognizing revenue: Companies must determine when and how to recognize
revenue. Different companies may have different interpretations of the criteria
for revenue recognition, leading to variations in the timing and amount of
revenue recognized.
v) Judgments about presentation and disclosure: Companies must make judgments
about how to present and disclose revenue information. Different companies
may make different judgments, leading to variations in the format and content
of financial statements, making it difficult to compare.
vi) Judgement to determining the policies payment : In determining the policy to
focus on revenue recognition on sales, it is a qualitative characteristic of
comparability and will be a differentiator from competitors. In this case the
payment method is the way out. This payment method is to make it easier for
consumers and protect cash flow from the company (nokia). This payment
method is paylatter, as a form of financial facility or payment without using a
credit card. This method will make it easier for consumers and indirectly from
this convenience it will increase revenue recognition. This new method is an
update of the old model of payment method where in using a credit facility you
have to have a card and more detailed requirements.
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FINANCIAL REPORT AND CONTROL

2) The Caddie Shack Driving Range

The Caddie Shack Driving Range

Statement of Financial Position
May 31, 2015

ASSETS $
Non-current assets 6.800
Building 6.000
Equipment (golf club, golf balls, and yardage signs) 800
Current assets 15.100
Bank 15.100
TOTAL ASSETS 21.900

LIABILITIES $
Advertising payable 150
Utility payable 100
Owner’s equity :
Owner’s capital 21.650
TOTAL LIABILITIES AND EQUITY 21.900

Notes :
Particular $
Revenue 4.700
Less :
Rent (1.000)
Advertisement Cost (750)
Retrieving Cost (400)
Utility Expenses (100)
INCOME 2.450

Add : Capital Invested 20.000

Less : Personal Withdrawal (800)
OWNER’S CAPITAL 21.650

- Murray has concluded that the business entity is operating at a profit of $2.450 by
taking the difference between the beginning capital balance of $20.000 and the
ending capital balance of $22.450.
- Murray will conclude that the business entity is operating at a loss of $4.900 by
taking the amount of reduction in the ending cash balance as compared to the
opening cash balance.

ANALYSIS
There's two kind of income measurement for bussiness partership, accrual basis
accounting and cash basis accounting. them both have strengths and weaknesses. but as
 GROUP ASSIGNMENT 1
FINANCIAL REPORT AND CONTROL

bussiness partner we prefer to choose accrual basis being income measurement because
actually accrual basis is more accurate than cash basis. accrual basis is a metode for income
measurement that when the bills come in, we record it as expense even we haven't pay the
bill. it also can be more accurate for picture of bussiness performance, also its also can
make bolder for making financial decisions, besides that accrual basis more work and
accurate because its not just use account bank for the financial record but also icloud
inovices. for cash basis is mostly used by sole proprietors and bussiness with no investory,
even it more simple, cash basis only record when the money we've received, rather than
invoices issued, so its not accurate at all.

PRINCIPLE
According to International Financial Reporting Standards (IFRS), income is
defined as the increase in economic benefits during a specific period of time, such as a
year, in the form of inflows or enhancements of assets or decreases of liabilities that result
in an increase in equity, other than those relating to contributions from equity participants.
This increase in economic benefits can take the form of revenue from sales, rental income,
interest income, and other similar sources.
The concept of income is calculated based on Accrual Basis of Accounting. The $2.450
profit and $4.900 loss are due to the expense must be recognized as incurred. It defines the
concept of basic terms that exclude cash withdrawal from measurement of incame. Cash
distributions are part of owners equity not income.