Revenue Recognition
A: The primary criteria the auditor should use in determining revenue to be recognized are:
(1): persuasive evidence of an arrangement exists.
(2): Delivery has occurred or services have been rendered.
(3): The seller’s price to the buyer is fixed or determinable.
(4): Collectability is reasonably assured.
The most basic principle for revenue recognition is revenue has been realized or realizable and earned.
B: (1) a: Multiple deliverable. Does the software and one year internet service has standard alone value and what are the standard alone prices for them? b: When will the software be delivered? Do customers have the right of return? How do they calculate 30% for the sale of software and 70% for the internet service? c: No, there is no evidence shows that AOL would sell software separately so soft has no standard alone value. In this case, AOL cannot recognize any revenue until they delivered services for customer. (2) a: Persuasive evidence of an arrangement exists. Do they have enough evidence to show that they will make deal with customer and the collectability of revenue is reasonable? b: Does the completed date of the building of factory is predictable ? c: Yes, Modis should recognize 45 million as their revenue because the customer acknowledge the contract and have confirmed the amount, so it is reasonable to say that they will make a deal when the factory is completed and the customer will pay the amount.
(3) a: The right of return exists. At what point in time should revenue be recognized? b:What is the return rate for low-end line products? Does product have been sold? What is the cost of goods sold for each product? c: Yes, Standish stoneware should recognized revenue when they sold their products. Even though products have right of return, Standish stoneware have delivered product to customer and revenue have been collected.
(4) a: The seller’s price to the buyer is fixed or
(1): persuasive evidence of an arrangement exists.
(2): Delivery has occurred or services have been rendered.
(3): The seller’s price to the buyer is fixed or determinable.
(4): Collectability is reasonably assured.
The most basic principle for revenue recognition is revenue has been realized or realizable and earned.
B: (1) a: Multiple deliverable. Does the software and one year internet service has standard alone value and what are the standard alone prices for them? b: When will the software be delivered? Do customers have the right of return? How do they calculate 30% for the sale of software and 70% for the internet service? c: No, there is no evidence shows that AOL would sell software separately so soft has no standard alone value. In this case, AOL cannot recognize any revenue until they delivered services for customer. (2) a: Persuasive evidence of an arrangement exists. Do they have enough evidence to show that they will make deal with customer and the collectability of revenue is reasonable? b: Does the completed date of the building of factory is predictable ? c: Yes, Modis should recognize 45 million as their revenue because the customer acknowledge the contract and have confirmed the amount, so it is reasonable to say that they will make a deal when the factory is completed and the customer will pay the amount.
(3) a: The right of return exists. At what point in time should revenue be recognized? b:What is the return rate for low-end line products? Does product have been sold? What is the cost of goods sold for each product? c: Yes, Standish stoneware should recognized revenue when they sold their products. Even though products have right of return, Standish stoneware have delivered product to customer and revenue have been collected.
(4) a: The seller’s price to the buyer is fixed or