Exam 13: Revenue and Expense Recognition: Additional Concepts

When research and development costs are incurred in the expectation of future benefits but it is not possible,at the reporting date,to establish that it is probable that future economic benefits will eventuate,then:

Highrise Constructions Ltd had a large 3-year project with total revenue of $5 000 000 and estimated total costs of $4 200 000. The project was 25% complete at the end of the first year, 55% complete at the end of the second year, and 100% complete at the end of the third year. Revenues and costs were as estimated. -What profit was earned during the second year if the percentage of completion method was used?

Use the information below to answer the following questions: Multi-Storey Builders Ltd had a large 3-year project with total revenue of $8 000 000 and estimated total costs of $6 500 000. The project was 20% complete at the end of the first year, 70% complete at the end of the second year, and 100% complete at the end of the third year. Revenues and costs were as estimated. -What profit was earned during the first year if the percentage of completion method was used?

Use the information below to answer the following questions: Freda Ltd decided to change its accounting for long service leave in order to accrue expense sooner than had been done previously. The effect on provision for employee entitlements as at the end of 2011 was to increase it by $14 000. By the end of 2009, the liability would go up by $21 000. The company’s income tax rate is 35%. -What would be the effect of the change on 2012 net profit?

Which of the following transactions may NOT give rise to revenues?

Revenue recognition means that:

Use the information below to answer the following questions: On 1 January 2010, Romulus Ltd signed a contract worth $21 000 000 to construct a light rail from here to there. The light rail was to be built over 3 years, with progress payments of $7 000 000 to be made at the end of each year. Estimated costs were $15 000 000 and the following costs incurred and paid by Romulus Ltd were in accordance with estimates and represented the percentage completed in each year: \ 2010 \ 8000000 2011 \ 5000000 2012 \ 2000000 The project was completed in December 2012. -Using the percentage of completion method,what profit would Romulus Ltd report in 2012?

Which of the following is NOT necessary in order to recognise revenue under the percentage of completion method?

Toy Company manufactures toy koalas.Transactions for the year 2012 were as follows: (i)16 000 koalas were manufactured at a cost of $30 each. (ii)12 000 koalas were sold for $50 each. (iii)Cash was collected on 7000 of the items sold. What was the reported profit for the year 2012 if revenue was recognised at the point of sale?

Junction Company had the following transactions,among others,during August.Which transaction represented an expense during August?

Which of the following is one of the key criteria that must normally be met in order that revenue may be recognised?

Use the information below to answer the following questions. Each question is to be considered separately. The income statement of Berrima Barbed Wire Ltd is: \ Revenue 22,000 Expense Profit before income tax 10,000 Income tax expense (30\%) Net profit -If salaries expense amounting to $3000 were eliminated,what would be the effect on net profit after tax?

Use the information below to answer the following questions: The profit for a particular project of Blue Fin Ltd, using the percentage of completion method, was $470 000 for year 1 and $690 000 for year 2 (completion). -What difference would there be to profit for year 2 if the completion of production method were used?

Holidays Ltd manufactures caravans. Transactions for the year ended 30 June 2012 were as follows: (i) 1200 caravans were manufactured at a cost of $15 000 each. (ii) 1000 caravans were sold for $20 000 each. (iii) Cash was collected on 950 of the caravans sold. -What was the reported profit for the year ended 30 June 2012 if revenue was recognised when cash was received?

Which of the following statements about the percentage of completion method of revenue recognition is NOT true?

Use the information below to answer the following questions. Each question is to be considered separately. The income statement of Berrima Barbed Wire Ltd is: \ Revenue 22,000 Expense Profit before income tax 10,000 Income tax expense (30\%) Net profit -If revenue increased by 30%,with no effect on expenses other than income tax,what would be the effect on net after tax profit?

Use the information below to answer the following questions: Leslie Ltd has found an error in its revenue account: an invoice for $3000 was recorded as revenue in 2011 when it should have been recorded in 2012. The company’s income tax rate is 40% and there was no corresponding error in cost of goods sold. -Assuming that the dividend is unchanged,what is the effect of the error on retained profits at end of 2011?

Use the information below to answer the following questions: Leslie Ltd has found an error in its revenue account: an invoice for $3000 was recorded as revenue in 2011 when it should have been recorded in 2012. The company’s income tax rate is 40% and there was no corresponding error in cost of goods sold. -What is the effect of the error on the 2008 net profit?

Use the information below to answer the following questions: The percentage of completion profit for a particular project of Redgate Ltd was $200 000 for year 1 and $220 000 for year 2 (completion). -What difference would there be in profit for year 2 if the completion of production method were used?

Although revenue may be recognised at various points in the revenue generation sequence,it is normally recognised when: