11 Revenue_Recognition 2 - Revenue Recognition Revenue...

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Unformatted text preview: Revenue Recognition Revenue Recognition Multiple Deliverables Multiple Deliverables Accountancy 301 Spring 2011 Flora Zhou 11 Today Today s agenda s agenda Long term construction contracts (cont) Completed contract method Comparison between percentage-of-completion and completed contract methods Revenue recognition for bundled sales EITF 00-21 vs. the new rule Discussion on Apple iphone revenue recognition Review: Percentage-of-completion Review: Percentage-of-completion method method For profitable contracts Gross Profit is recognized based on percentage of job completed. Cost-to-cost ratios are typically used to estimate percentage of completion (percent complete). Loss in current period on a profitable contract Under percentage of completion method, must recognize the loss in the current period Loss on an unprofitable contract Under percentage of completion method, the entire expected contract loss must be recognized in the current period Long-term contracts: Long-term contracts: Completed-contract method Completed-contract method Completed-contract method should be used if the percentage-of-completion method is inappropriate. when is it inappropriate? Revenue and gross profit is not recognized until the project is complete. Entries are similar to percentage-of-completion with the exception of periodic recognition of revenue and gross profit. Completed -contract method Completed -contract method For profitable contracts: Revenue and Expense recognition is deferred until the contract is complete. No adjustments are made at year end for revenue and expense recognition while the contract is ongoing. All contract revenues and expenses are recognized in the year the contract is completed. In the case of an unprofitable contract: Recognize the expected contract loss in the period in which the loss becomes known. Debit loss on contract for the amount of the expected loss with a credit to CIP inventory. Recognizing current & overall Recognizing current & overall losses on long-term contracts losses on long-term contracts Current Loss on an otherwise overall profitable contract Loss on an overall unprofitable contract Completed-contract method Completed-contract method An example An example Hardhat Construction Company has a contract starting July 2001 to construct a $4,500,000 bridge that is expected to be completed in October 2003. The following data pertains to the project over 3 years. Assuming the contract is estimated to be profitable, but the total expenses cannot be estimated accurately.estimated accurately....
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11 Revenue_Recognition 2 - Revenue Recognition Revenue...

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