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7.2.1 Timing of Receipts (GAAP (Which GAAP? (Usually UK GAAP; FRS102, Or…

- - - - Can reliably estimate the outcome of supplying services through:
        
        The amount of the revenue
        
        The costs incurred or to be incurred
        
        The state of completion
      - No reliable estimate of outcome?
        
        Recognise revenue to extent of recoverable expenses
      - Reliable estimate can be made?
        
        Recognise amount of revenue referable to the stage of completion at end of period of account
  - - - Royalties paid in arrears
        
        Often acceptable to recognise on receipts basis where artist does not know how much due until statement received.
      - Royalties paid in advance
        
        Immediate recognition
        
        Non returnable advances create certain outcome, and are earned when contract made.
        
        Recognition on delivery
        
        Advance treated as earned when work delivered to / accepted by publisher.
        
        Recognition as future royalties earned
        
        Deferred income released to P&L when artist notified of royalties earned.
  - - - A contract specifically negotiated for the construction of an asset or a combination of assets that are closely interrelated or interdependent in terms of the their design, technology and function of their ultimate purpose or use.
      - Tends to cover more than one period of account
      - Waiting for completion of a long term contract before recognising revenue would not give true and fair view of performance
    - - Can outcome be estimated reliably in terms of
        
        The stage of completion
        
        Future costs
        
        Collectability of billings
      - No reliable estimate
        
        Recognise revenue to extent of contract costs that are probably recoverable
        
        Recognise contract costs as expenses in the period in which they are incurred
      - Reliable estimate
        
        Recognise contract revenue and costs by reference to stage of completion, perhaps by
        
        Costs incurred as %age of total costs
        
        Surveys
        
        Physical proportion of contract performed
      - Loss anticipated
        
        Recognise immediately
      - Contact compliance accountant before challenging
  - - - can reliably measure amount of revenue
      - can reliably measure costs incurred / to be incurred in provided goods
      - transfers risks and rewards of owning goods
      - Doesn’t have effective control of goods sold or managerial involvement usually associated with owning goods
      - These tests often met when goods delivered
- - - - Recognise liability equal to the advance payment on balance sheet; deferred income
      - Costs related to earning are deferred if they result in an asset; prepayment or WIP
    - - Credit revenue earned as income with corresponding reduction of the advance payment liability
  - - - When received trader doesn’t know if contract will be fulfilled, and amount probably returnable if contract not completed
      - Becomes revenue when service performed or good delivered
    - - Sum taken as security in case contract not completed by action of purchaser
      - Is liability on receipt; deferred income
      - Recognised as revenue when there is certainty about the outcome
  - - - May be appropriate to do this on straight line basis
      - May be appropriate to do this in another way by reference to expected costs
  - - - Could recognise all revenue immediately, and provide for estimate of expenditure to be incurred
      - Could defer recognition of all revenue on basis no estimate of expenditure to be incurred can be made, deferred income released to P&L when expense incurred, and any profit released to P&L at end of contract.