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Revenue Recognition Part 1 (Multiple-Element Arrangements (Best Estimate…
Revenue Recognition Part 1
GAAP
Revenue when earned
(rule of conservatism) - 4 criteria
Signed agreement
Risks and rewards transferred
No price contingencies
Standard collection terms
IFRS
Divided into 4 categories(to recognize revenue)
Goods
Measured reliably, risk/reward transferred, & doesn't retain managerial involvement
Services
% of completion method (same requirements as Goods)
Interest, Royalty, & Dividends
Revenue measured reliably & economic benefits
Construction
% of completion (contract revenue and costs measured reliably)
Recognizing Revenue Under Arrangements
Unearned Revenue
-
recorded as liability
Sales w/ Right of Return
- recognized at time of sale (must meet following)
price is substantially fixed
buyer assumes all risks
buyer has paid and product is substantially complete
returns can be reasonably estimated
not a contingent sale
Sales w/ Buybacks
- if recorded as revenue
there must be evidence that the buyer retains the risks and benefits (else recorded as liability
Bill & Hold Sales
- seller bills customer but buyer not ready to take delivery
Record as revenue if:
risk of ownership has passed
committed to purchase, set price established, & fixed delivery date exists
sold goods are separated from seller's inventory
Consignment
- entity should not recognize revenue
products is controlled by entity until a specific event occurs
able to require a return of the product
consignee doesn't have unconditional obligation to pay
Multiple-Element Arrangements
Best Estimate Sales Price (BESP)
Third Party Evidence (TPE)
Vendor Specific Objective Evidence (VSOE)
FV Used:
right of return and delivery/performance is considered probable
delivered item has value to customer
Separate units of accounting if: