02 Revenue recognition - Revenue Recognition Reference:...

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1 Revenue Recognition Reference: Kieso et al, Chapter 6
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2 Outline Definition and criteria Earnings process Sale of goods Service & L-T contracts Uncertainty Measurement collectability
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3 Restatements in U.S., 1997-June 2002 Definition Long-term contracts Question1 Conclusion
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4 Loss in market value 3-days around restatements Definition Long-term contracts Question1 Conclusion
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5 Recognition Recognition is the process of putting an item in the financial statements . Many transactions and items that meet the definitions of financial statement elements do not appear on the B/S or I/S.
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6 Revenue recognition principle Revenue is recognized when performance is substantially complete and when collection is reasonably assured.
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7 Performance achievement Performance is achieved when 1. the risks and rewards are transferred and/or the earnings process is substantially complete 2. measurability is reasonable assured. This requires that: persuasive evidence of an arrangement exists; goods have been delivered or services rendered; and the seller’s price is fixed and determinable.
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8 The earnings process The earnings process consists of the steps that a company takes to add value. The earnings varies between companies. Often a single critical event will signal substantial completion or performance (e.g., delivery of goods to a customer).
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9 Sale of goods – a few issues 1) Sales with buyback 2) Bill and hold transactions 3) Transactions with customer acceptance provisions: trial or evaluation basis; subjective criteria (fit, colour, etc.); objective specifications
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Sale of goods – a few issues 4) Accounting for consignment sales The consignee accepts the merchandise and agrees to look after it and selling it. Goods are never the property of the consignee.
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This note was uploaded on 05/06/2010 for the course COMM Comm 353 taught by Professor Zhang during the Spring '09 term at The University of British Columbia.

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02 Revenue recognition - Revenue Recognition Reference:...

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