1 (b) Prepare a case study to illustrate the accounting treatment for revenue recognition

under THREE (3) categories mentioned above

Malaysian Financial Reporting Standard 118 (MFRS 118) deals with revenue. Here are some
case study to illustrate the accounting treatment for revenue recognition.
Tai Moong Sdn Bhd made an arrangement to exchange dissimilar goods which are
oranges with another producers in order to meet the requirements of each of their producer.
Tai Moong Sdn. Bhd. Has been transferred from their producer the significant rewards of
ownership and risks. Tai Moong Sdn Bhd’s producers do not retain any involvement in
management and do not associate with the ownership and control over the oranges sold. Tai
Moong Sdn Bhd makes sure that they make economic benefits with their producers and
transactions were on time. The cost incurred to Tai Moong Sdn Bhd was measured and
recorded in a reliable way. In this case, the revenue is recognised as rising as all the important
criteria under the “sales of goods” is being met. Besides, Tai Moong Sdn Bhd exchanges the
dissimilar goods with their producer which are oranges. When good are swapped or
exchange with a similar value, the exchange is regarded as a transaction that which
generating revenue for the company. They are considered as a regular commercial transaction
instead of an arrangement between suppliers. On the other hand, if a services or goods were
exchanged are similar good or services, they are not considered as a transaction that which
generates revenue.
The other example under the category of “sale of goods” is Ali Sdn Bhd retain a
significant rewards and risks of the ownerships. Ali Sdn Bhd retains an obligations for their
customers for unsatisfied goods or services and does not cover any warranty provisions. A
buyer, Mr. Ang bought a razor machine from Ali Sdn Bhd. Mr. Ang bought the razor
machine online and the goods was shipped to him and subjected to installation, however, the
significant part of the contract has not completed by Ali Sdn Bhd. In this case, Ali Sdn Bhd
had retained significant risks of ownership. Therefore, the transaction between Ali Sdn Bhd
and Mr. Ang is not considered as a sale and the re venue is not recognized. This is because
Ali Sdn Bhd did not fulfil with the “sales of good” criteria. They retained a lot of significant
risk, therefore, even if the transaction was made between Mr. Ang and Ali Sdn Bhd, it is not
recognized as a revenue for Ali Sdn Bhd.
Next, the other example for the category under “Rendering of Services” is as follows.
Mr. Wong had made a transaction with Aik Sum Sdn Bhd by buying washing machine from
Aik Sum Sdn Bhd. Mr. Wong bought the washing machine through walk in and receipt was
given, therefore, Mr. Wong has the enforceable rights at the moment he bought the product.
Besides, when Mr. Wong paid, the date and all necessary information was recorded
immediately. Aik Sum Sdn Bhd had improve their own internal financial budgeting and
reporting system. Aik Sum Sdn Bhd makes sure that they review and revise the estimations of
revenue when the goods are sold. This has made Aik Sum Sdn Bhd has a reliable estimation
of revenue whenever there is any transactions. In this case, the revenue from the transaction
between Mr. Wong and Aik Sum Sdn Bhd which is involving the rendering of services
should be recognized. This is because the outcome of the transaction can be estimated due to
the important conditions were satisfied. Since Aik Sum Sdn Bhd had improve their internal
financial budgeting and reporting system, the revenue amount can be measured in a reliable
way. Nevertheless, the stages of completion of transaction between Mr. Wong and Aik Sum
Sdn Bhd at the reporting date can me measured. Therefore, there are sufficient reasons for the
transaction to be recognized as a revenue.
Besides, the other example for the category under “interest” is as follows. Ms. Alice
was required to pay interest to Hay Day Sdn Bhd. However, it has accrued before the
acquisition of the interest. The receipt of the interest was in post-acquisition periods. In this
case, the revenue of the interest from Ms. Alice should be recognised as revenue as the
receipt was allocated in the post-acquisition portion.
The next example for the category under “royalties” is as follows. Mr. Ali wants to
expand his business and he needs a land. Mr. Ali plans to expands this business in a long run
therefore he decided to pay royalties instead of renting. He pays Mr. Khairul, the landlord, to
buy the rights to use the property of Mr. Khairul. Mr. Ali and Mr. Khairul did the royalties
licensing before there is any payment or transactions being processed. In this case, the
royalties are recognized as revenue as the substance of agreement is met.
The other example for the category under “dividends” is as follows. Bushy White
Company is a public listed company. The board of directors decided to made the dividends
on equity from pre-acquisition profits. However, they clearly stated that the dividends are for
the equity securities recovery purpose. In this case, the dividends is not recognized as
revenue.