Week 6_Revenue Recognition

Week 6_Revenue Recognition - Issues in Corporate Financial...

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1 Issues in Corporate Financial Reporting and Analysis (ACCT3563/3573) Revenue Recognition and Share-based Payments Required readings Deegan Chapter 16, Sections 16.1 – 16 5 16.5 Deegan Chapter 18 Picker et al Chapter 25 AASB 2 17/04/2009 2 AASB 111 AASB 118 ACCT3563/3573 IFRA
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2 Revenue recognition Sale of goods Learning Objectives Rendering of services Interest, royalties and dividends Share based payments as expenses Meaning of share based payment Cash-settled and equity-settled share-based 17/04/2009 3 payment transactions Relationship to earnings management ACCT3563/3573 IFRA Definition of income Income defined by AASB Framework as: Increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases in liabilities that result in an increase in equity, other than those relating to contributions from equity partners 17/04/2009 4 Income is divided into ‘_________ ’ and ‘______’ ACCT3563/3573 IFRA
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3 Definition of revenue AASB 118 ‘Revenue’: The gross inflow of economic benefits during the period arising in the course of the ordinary activities of an entity when those inflows result in increases in equity, other than increases relating to 17/04/2009 5 other than increases relating to contributions from equity participants ACCT3563/3573 IFRA AASB 118 Revenue Accounting for revenue arising from transactions and events relating to: a) the sale of goods b) the rendering of services c) the use by others of entity assets yielding interest, 17/04/2009 6 royalties and dividends ACCT3563/3573 IFRA
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4 1.Devising an idea 8. Delivery of 9. Receipt of cash The Earnings Cycle 2. Making purchases (e.g. of inventories) 3.Receipt of orders before commencing production 7. Receipt of orders after completing production goods to customers 4. Commencing production 5. Progressively throughout production 6. Completion of production Revenue recognition: sale of goods When all of the following conditions are satisfied: the entity has transferred to the buyer the significant risks and rewards of ____________ of the goods the entity retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods the amount of revenue can be measured reliably 17/04/2009 8 it is probable that the economic benefits associated with the transaction will flow to the entity the _________ incurred or to be incurred in respect of the transaction can be measured reliably ACCT3563/3573 IFRA
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5 Revenue recognition: sale of goods Recognition criteria usually met when buyer takes responsibility for the goods F.O.B. shipping point o Title passes to the buyer (and revenue is recognised) when the seller ____________ to a common carrier who acts as an agent for the buyer F O B destination F.O.B. destination o Title does not pass (and revenue is not recognised) until the buyer __________________ from the carrier 17/04/2009 9 ACCT3563/3573 IFRA Revenue recognition: sale of goods Bill and hold sales Probable _________ , item on hand, buyer acknowledges deferred delivery usual payment terms apply
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Week 6_Revenue Recognition - Issues in Corporate Financial...

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