Question 1

Transactions such as the purchase of assets or the issuance of debt are not considered income because:

Accepted Answer

A) they involve external parties. 
B) they necessarily involve cash. 
C) they do not result in an increase in equity. 
D) they both result in an increase of the asset or liability concerned. 
A) they involve external parties. 
B) they necessarily involve cash. 
C) they do not result in an increase in equity. 
D) they both result in an increase of the asset or liability concerned.

Question 2

Gains must be reported net of related expenses.

Accepted Answer

A) True 
 B)False

Question 3

Kringle Company has agreed to provide services to North to South Plc in exchange for a piece of equipment and a cash payment.The equipment is currently recorded in North to South's books at €73 000 but independent assessors have set the fair value at €65 000.The cash payment of €20 000 will be received 12 months after completion of the services.Kringle should record revenue as:

Accepted Answer

A) €85 000 
B) €65 000 in the current period, €20 000 next period 
C) €93 000 
D) €65 000 plus the present value of the €20 000 cash component 
A) €85 000 
B) €65 000 in the current period, €20 000 next period 
C) €93 000 
D) €65 000 plus the present value of the €20 000 cash component

Question 4

When the cost basis is used to calculate the percentage of completion,cost items that may need adjustment include:

Accepted Answer

A) discounts for the bulk purchase of construction materials. 
B) gains and losses on foreign currency translation. 
C) materials delivered and paid for, but not yet used. 
D) interest charges on late payments for materials and other items used in the construction project. 
A) discounts for the bulk purchase of construction materials. 
B) gains and losses on foreign currency translation. 
C) materials delivered and paid for, but not yet used. 
D) interest charges on late payments for materials and other items used in the construction project.

Question 5

Describe the output and input measures of performance that an entity is required to use when measuring the progress to date on a construction contract.

Accepted Answer

Paragraphs 41 to 46 of IASB (2011)Revenu

Question 6

In accordance with IASB (2011)Revenue from Contracts with Customers discuss the five steps to recognising revenue.

Accepted Answer

According to the Exposure Draft Revenue

Question 7

If the borrower prepays interest,the inflow of future economic benefits represented by the prepayment would not constitute an item of revenue to the lender because the lender has a present obligation to the borrower to provide finance for the period to which the prepayment relates.

Accepted Answer

A) True 
 B)False

Question 8

Discuss how the use of call and put options affect revenue recognition for sales of merchandise with associated conditions.

Accepted Answer

Transactions involving the sale of asset

Question 9

Transfer of 'control' of the asset is central to the recognition of revenue under the new accounting standard IASB (2011)Revenue from Contracts with Customers.

Accepted Answer

A) True 
 B)False

Question 10

When a performance obligation is satisfied,an entity shall recognise revenue:

Accepted Answer

A) in full if it is an immaterial amount. 
B) when the asset is transferred and the customer gains control of the asset. 
C) when the entity retains control. 
D) when the risks and rewards are transferred to the customer. 
A) in full if it is an immaterial amount. 
B) when the asset is transferred and the customer gains control of the asset. 
C) when the entity retains control. 
D) when the risks and rewards are transferred to the customer.

Question 11

If a company sells its product but gives the buyer the right to return the product,IASB (2011)Revenue from Contracts with Customers requires revenue from the sales transaction to be recognised at the time of sale.

Accepted Answer

A) True 
 B)False

Question 12

IASB and FASB initiated a joint project to clarify the principle for recognising revenue and develop a common revenue standard for IFRS and US GAAP so as to:

Accepted Answer

A) remove inconsistencies and weaknesses in existing revenue requirements. 
B) provide a more robust framework for addressing revenue issues. 
C) simplify the preparation of financial statements. 
D) All of the given answers are correct. 
A) remove inconsistencies and weaknesses in existing revenue requirements. 
B) provide a more robust framework for addressing revenue issues. 
C) simplify the preparation of financial statements. 
D) All of the given answers are correct.

Question 13

Accounting standards require that the provision for doubtful debts should be shown as a deduction from the class of assets to which it relates.The net expense in relation to bad and doubtful debts must also be disclosed.

Accepted Answer

A) True 
 B)False

Question 14

Interest revenue is derived from borrowing resources from another entity.

Accepted Answer

A) True 
 B)False

Question 15

Hillier Construction Ltd commenced the construction of a building on 1 July 2013.It has a fixed-price contract for total revenues of $45 million.The expected completion date is 30 June 2016.The expected total cost to Hillier Construction at the beginning of the project is $35 million.The following information relates only to the construction of this building: $$\begin{array} { | l | r | r | r | } 
\hline \text { For the year ending } 30 \text { June } & \begin{array} { r } 
2014 \
( \$ 000 )
\end{array} & \begin{array} { r } 
2015 \
( \$ 000 )
\end{array} & \begin{array} { r } 
2016 \
( \$ 000 )
\end{array} \
\hline \text { Costs for the year } & 12500 & 15000 & 10000 \
\hline \text { Costs incurred to date } & 12500 & 27500 & 37500 \
\hline \text { Estimated costs to complete } & 23000 & 8500 & - \
\hline \text { Progress billings during the year } & 10000 & 12000 & 23000 \
\hline \text { Cash collected during the year } & 10000 & 11000 & 24000 \
\hline
\end{array}$$ Hillier Construction uses the percentage-of-completion method based on cost to account for its construction contracts.What is the gross profit to be recognised in each of the 3 years (rounded to the nearest $000)?

Accepted Answer

A)  $\begin{array}{|l|l|l|}
\hline 2014(\$ 000) & 2015(\$ 000) & 2016(\$ 000) \
\hline 3345 & 3530 & 3970 \
\hline
\end{array}$ 
B)  $\begin{array}{|l|l|l|}
\hline 2014(\$ 000) & 2015(\$ 000) & 2016(\$ 000) \
\hline 3345 & 3530 & 625 \
\hline
\end{array}$ 
C)  $\begin{array}{|l|l|l|}
\hline 2014(\$ 000) & 2015(\$ 000) & 2016(\$ 000) \
\hline 7747 & 20135 & 17118 \
\hline
\end{array}$ 
D)  $\begin{array}{|l|l|l|}
\hline 2014(\$ 000) & 2015(\$ 000) & 2016(\$ 000): \
\hline 3571 & 4286 & 2857 \
\hline
\end{array}$ 
A)  $\begin{array}{|l|l|l|}
\hline 2014(\$ 000) & 2015(\$ 000) & 2016(\$ 000) \
\hline 3345 & 3530 & 3970 \
\hline
\end{array}$ 
B)  $\begin{array}{|l|l|l|}
\hline 2014(\$ 000) & 2015(\$ 000) & 2016(\$ 000) \
\hline 3345 & 3530 & 625 \
\hline
\end{array}$ 
C)  $\begin{array}{|l|l|l|}
\hline 2014(\$ 000) & 2015(\$ 000) & 2016(\$ 000) \
\hline 7747 & 20135 & 17118 \
\hline
\end{array}$ 
D)  $\begin{array}{|l|l|l|}
\hline 2014(\$ 000) & 2015(\$ 000) & 2016(\$ 000): \
\hline 3571 & 4286 & 2857 \
\hline
\end{array}$

Question 16

The percentage of completion can be measured in a number of ways,including:

Accepted Answer

A) physical estimates or surveys of the work performed to date. 
B) the work plan basis, which uses the project management plan to calculate the percentage of the construction completed. 
C) the billings basis, using the proportion that progress billings to date bear to the total estimated billings for the contract. 
D) physical estimates or surveys of the work performed to date and the billings basis, using the proportion that contract costs incurred for work performed to date bear to the estimated total contract costs. 
A) physical estimates or surveys of the work performed to date. 
B) the work plan basis, which uses the project management plan to calculate the percentage of the construction completed. 
C) the billings basis, using the proportion that progress billings to date bear to the total estimated billings for the contract. 
D) physical estimates or surveys of the work performed to date and the billings basis, using the proportion that contract costs incurred for work performed to date bear to the estimated total contract costs.

Question 17

Magazines Galore receives subscription money in advance,and has received £50 000 from customers on 1 February to cover the next ten issues of Wheels Galore.There are ten issues a year-one at the end of each month except for January and December.What are the appropriate accounting entries to record the receipt of the subscription money and (assuming no monthly entries have been made)the adjusting entry at 30 June (after June's issue has been mailed to subscribers)?

Accepted Answer

A)  $$\begin{array}{l}
1 \text { February }\
\begin{array} { | c | l | c | c | } 
\hline \mathrm { Dr } & \text { Cash at bank } & 50000 & \
\hline \mathrm { Cr } & \text { Subscription revenue } & & 50000 \
\hline\
\hline { 30 \text { June } } & & \
\hline \mathrm { Dr } & \text { Subscription revenue } &  25000 & \ 
\hline \mathrm { Cr } & \text { Subscriptions received in advance } && 25000  \
\hline
\end{array}
\end{array}$$ 
B)  $$\begin{array} { | c | l | c | c | } 
\hline { \text { 1 February } } & \
\hline \mathrm { Dr } & \text { Subscriptions received in advance } & 50000 & \
\hline \mathrm { Cr } & \text { Cash at bank } & & 50000 \
\hline{ 30 \text { June } } & & \
\hline \mathrm { Dr } & \text { Subscription revenue } & 25000 & \
\hline \mathrm { Cr } & \text { Subscriptions received in advance } & & 25000 \
\hline
\end{array}$$ 
C)  $$\begin{array}{l}
1 \text { February }\
\begin{array} { | c | l | c | c | } 
\hline \mathrm { Dr } & \text { Cash at bank } & 50000 & \
\hline \mathrm { Cr } & \text { Subscription revenue } & & 50000 \
\hline { 30 \text { June } } & & \
\hline \mathrm { Dr } & \text { Subscription revenue } & 20000  & \
\hline \mathrm { Cr } & \text { Subscriptions received in advance } && 20000  \
\hline
\end{array}
\end{array}$$ 
D)  $$\begin{array}{l}
1 \text { February }\
\begin{array} { | c | l | c | c | } 
\hline \mathrm { Dr } & \text { Cash at bank } & 50000 & \
\hline \mathrm { Cr } & \text { Subscriptions received in advance } & & 50000 \
\hline { 30 \text { June } } & & \
\hline \mathrm { Dr } & \text { Subscriptions received in advance } & 25000 & \
\hline \mathrm { Cr } & \text { Subscription revenue } & & 25000 \
\hline
\end{array}
\end{array}$$ 
A)  $$\begin{array}{l}
1 \text { February }\
\begin{array} { | c | l | c | c | } 
\hline \mathrm { Dr } & \text { Cash at bank } & 50000 & \
\hline \mathrm { Cr } & \text { Subscription revenue } & & 50000 \
\hline\
\hline { 30 \text { June } } & & \
\hline \mathrm { Dr } & \text { Subscription revenue } &  25000 & \ 
\hline \mathrm { Cr } & \text { Subscriptions received in advance } && 25000  \
\hline
\end{array}
\end{array}$$ 
B)  $$\begin{array} { | c | l | c | c | } 
\hline { \text { 1 February } } & \
\hline \mathrm { Dr } & \text { Subscriptions received in advance } & 50000 & \
\hline \mathrm { Cr } & \text { Cash at bank } & & 50000 \
\hline{ 30 \text { June } } & & \
\hline \mathrm { Dr } & \text { Subscription revenue } & 25000 & \
\hline \mathrm { Cr } & \text { Subscriptions received in advance } & & 25000 \
\hline
\end{array}$$ 
C)  $$\begin{array}{l}
1 \text { February }\
\begin{array} { | c | l | c | c | } 
\hline \mathrm { Dr } & \text { Cash at bank } & 50000 & \
\hline \mathrm { Cr } & \text { Subscription revenue } & & 50000 \
\hline { 30 \text { June } } & & \
\hline \mathrm { Dr } & \text { Subscription revenue } & 20000  & \
\hline \mathrm { Cr } & \text { Subscriptions received in advance } && 20000  \
\hline
\end{array}
\end{array}$$ 
D)  $$\begin{array}{l}
1 \text { February }\
\begin{array} { | c | l | c | c | } 
\hline \mathrm { Dr } & \text { Cash at bank } & 50000 & \
\hline \mathrm { Cr } & \text { Subscriptions received in advance } & & 50000 \
\hline { 30 \text { June } } & & \
\hline \mathrm { Dr } & \text { Subscriptions received in advance } & 25000 & \
\hline \mathrm { Cr } & \text { Subscription revenue } & & 25000 \
\hline
\end{array}
\end{array}$$

Question 18

The following is a diagram of the earnings cycle as presented by Coombes and Martin (1982).   Because of uncertainty and depending on which measurement model is being applied,revenue recognition will take place at a limited number of points in the earnings cycle.In traditional historical-cost accounting,in most cases,at which point in the cycle above have revenues been recognised?

Accepted Answer

A) Point 5 
B) Point 8 
C) Point 7 
D) Point 9 
A) Point 5 
B) Point 8 
C) Point 7 
D) Point 9

Question 19

Where the percentage-of-completion method is based on costs,costs that relate to the contract activity generally and are not normally related to specific contracts,such as finance costs,should be allocated across the projects currently in progress.

Accepted Answer

A) True 
 B)False

Question 20

IASB (2011)Revenue from Contracts with Customers requires an entity to recognise revenue for a performance obligation satisfied over time only if the entity can:

Accepted Answer

A) reasonably measure with complete satisfaction the performance obligation. 
B) reasonably measure its expected revenue of the performance obligation. 
C) reasonably measure its expected costs of the performance obligation. 
D) reasonably measure its progress towards complete satisfaction of the performance obligation. 
A) reasonably measure with complete satisfaction the performance obligation. 
B) reasonably measure its expected revenue of the performance obligation. 
C) reasonably measure its expected costs of the performance obligation. 
D) reasonably measure its progress towards complete satisfaction of the performance obligation.

Exam 13: Revenue Recognition Issues

Transactions such as the purchase of assets or the issuance of debt are not considered income because:

Gains must be reported net of related expenses.

When the cost basis is used to calculate the percentage of completion,cost items that may need adjustment include:

Describe the output and input measures of performance that an entity is required to use when measuring the progress to date on a construction contract.

In accordance with IASB (2011)Revenue from Contracts with Customers discuss the five steps to recognising revenue.

If the borrower prepays interest,the inflow of future economic benefits represented by the prepayment would not constitute an item of revenue to the lender because the lender has a present obligation to the borrower to provide finance for the period to which the prepayment relates.

Discuss how the use of call and put options affect revenue recognition for sales of merchandise with associated conditions.

Transfer of 'control' of the asset is central to the recognition of revenue under the new accounting standard IASB (2011)Revenue from Contracts with Customers.

When a performance obligation is satisfied,an entity shall recognise revenue:

If a company sells its product but gives the buyer the right to return the product,IASB (2011)Revenue from Contracts with Customers requires revenue from the sales transaction to be recognised at the time of sale.

IASB and FASB initiated a joint project to clarify the principle for recognising revenue and develop a common revenue standard for IFRS and US GAAP so as to:

Accounting standards require that the provision for doubtful debts should be shown as a deduction from the class of assets to which it relates.The net expense in relation to bad and doubtful debts must also be disclosed.

Interest revenue is derived from borrowing resources from another entity.

The percentage of completion can be measured in a number of ways,including:

Where the percentage-of-completion method is based on costs,costs that relate to the contract activity generally and are not normally related to specific contracts,such as finance costs,should be allocated across the projects currently in progress.

IASB (2011)Revenue from Contracts with Customers requires an entity to recognise revenue for a performance obligation satisfied over time only if the entity can:

An Overview of the International External Reporting Environment

The Conceptual Framework of Accounting and Its Relevance to Financial Reporting

Theories of Financial Accounting

An Overview of Accounting for Assets

Depreciation of Property, Plant and Equipment

Revaluations and Impairment Testing of Non-Current Assets

Inventory

Accounting for Intangibles

An Overview of Accounting for Liabilities

Accounting for Leases

Share Capital, Reserves and Share Options Employee Bonus Schemes

Accounting for Financial Instruments

The Statement of Comprehensive Income and Statement of Changes in Equity

Accounting for Income Taxes

The Statement of Cash Flows

Events Occurring After the Reporting Date

Related-Party Disclosures

Earnings Per Share

Further Consolidation Issues I: Accounting for Intragroup Transactions

Further Consolidation Issues II: Accounting for Non-Controlling Interests

Further Consolidation Issues III: Accounting for Indirect Ownership Interest

Accounting for Foreign Currency Transactions

Translating the Financial Statements of Foreign Operations

Accounting for Corporate Social Responsibility

Filters