Deck 9: Revenue

Question 1

Revenue can never be recognised before the point of sale.

Answer 1

False

Question 2

The statement regarding IAS 11/AASB 111 'Construction Contracts 'that is not true with respect to revenue recognition is:

A)The standard adopts the 'stage of completion' method
B)It is recommended that revenues and associated costs be recognised only when they can be 'clearly estimated'
C)Revenues and expenses are recognised in the financial years in which the construction activities are performed
D)None of the above,i.e.all are true statements

Answer 2

B

Question 3

The criteria that is not included in the Framework's definition of income is:

A)An increase in economic benefits
B)The economic benefits are in the form of increases in assets or reductions in liabilities of the entity (not resulting from equity contributions)
C)The economic benefit results from transactions or events that constitute the entities ongoing major or central operations
D)The benefits result in an increase in equity during the period

Answer 3

C

Question 4

Under the IAS standards accrued revenue cannot be recorded because there is no external transaction.

Question 5

In which of these cases would the criteria for recognising revenue definitely not be met?

A)A wholly executory contract
B)A credit sale
C)The signing of a lease
D)The collection of instalments on a higher purchase contract.

Question 6

Which of these is not an accepted exception to the recorded revenue at the time of sale?

A)Revenue recognised upon receipt of an order
B)Revenue recognised at the end of production
C)Revenue recognised when cash is received after the sale is made
D)Revenue recognised during production

Question 7

Under the IASB Framework revenue encompasses both income and gains.

Question 8

According to Myers,Paton and Littleton when do revenue and profit accrue in the earnings process for a clothing manufacturer?

A)Purchase of the raw materials (cloth,thread etc. )
B)Completion of the piece of clothing for sale
C)Sale of the clothing to a retail store on credit
D)All of the above

Question 9

Revenue recognition policies of US companies have been the subject of the majority of the SEC's requests for restatement of financial statements.

Question 10

Revenue is directly related to the monetary event of value increasing in the firm.

Question 11

The statement regarding recognition versus realisation of revenue that is true is:

A)For an asset to be "realised' there must be an inflow of assets or a measurable change in the value of an asset
B)'Recognition of revenue' means an inflow of liquid assets
C)'Realisable' means the asset received is readily convertible to known amounts of cash
D)All of the above are true

Question 12

Understatement of revenue is regarded as a greater problem by auditors than overstatement of revenue.

Question 13

Where revenue is not recognised until cash is received it is possible that the revenue recognition criteria 'substantial completion' has not been met prior to this event.

Question 14

In determining whether a sale has taken place consideration should only be given to the legal form of the contract of sale.

Question 15

Under the Framework the statement concerning gains that is incorrect is:

A)Income is defined to include both revenue and gains
B)Gains that meet the definition of income always arise outside the course of ordinary operations
C)The definition of income includes unrealised gains
D)None of the statements is incorrect

Question 16

According to Coombs and Martin when is revenue most likely to be recognised in the earning cycle?

A)Delivery of goods to customers
B)Receipt of orders after completing production
C)Receipt of cash
D)Completion of production

Question 17

Which standard provides specific guidance about revenue recognition in relation to the sale of goods and the rendering of service?

A)IAS 18/AASB 118
B)IAS 39/AASB 139
C)IAS 19/AASB 119
D)None of the above

Question 18

The main consideration to determine whether a sale has occurred is:

A)The economic substance of the transaction
B)Whether title to the goods has passed
C)The provisions of the legal contract
D)Whether the sale is for goods or services

Question 19

The IASB and the FASB's joint project on revenue recognition and measurement gives more emphasis to the substantial completion of the earning process than previous guidance and less on the change in value of assets and liabilities.

Question 20

At present,in most cases,the firm must be a direct participant in a transaction before revenue can be recognised.

Question 21

'The primary risk for auditors surrounding revenue is the risk that recorded revenue is overstated by managers'.J.Godfrey,et el,'Accounting Theory',7^th Ed.p.315.Give three examples of ways in which revenue can be overstated and make some suggestions as to how auditors can improve their auditing techniques in this area.

Question 22

Which of these is not a suggestion of the IASB/FASB joint project on financial statement presentation?

A)Multiple income statements
B)Separate disclosure of performance and remeasurement
C)The fact that an item is not realised will not preclude it from being included in the income statement
D)All are suggestions

Question 23

If revenue for 2010 is understated then:

A)Profit for 2010 is understated and net assets are overstated
B)Profit for 2010 is overstated and net assets are overstated
C)Profit for 2010 is understated and net assets are understated
D)None of the above

Question 24

Which of these overestimates of revenue can occur within the accounting standards?

A)Shipping goods prematurely to buyers without a firm order and recognising revenue when the goods are shipped
B)Making estimates which later prove to be over-optimistic
C)Backdating sales made during the early part of the new accounting period to the last part of the old accounting period
D)A and B can occur within the accounting standards

Question 25

Explain the justification for using the percentage-of-completion method to recognise revenue for long-term construction contracts rather than the point of sale.

Question 26

For a cash sale,when possession of the goods passes at the time of sale,revenue will be recognised:

A)At the point of sale
B)When the goods are delivered
C)When the cash is received
D)All of the above

Question 27

In which of these standards are gains and losses from remeasurement of assets included in either operating income or in 'comprehensive income'?

A)IAS 16/AASB 116
B)IAS 19/AASB 119
C)IAS 41/AASB 141
D)All of the above

Question 28

'The increase in net worth view of income (held prior to the First World War)was gradually supplanted by the notion that income had to be realised'.' J.Godfrey,et el,'Accounting Theory',7^th Ed.p.299.
Explain what this statement means and why the change in view point came about.Which view of income is currently gaining the ascendancy?

Question 29

Which of the principles proposed by the FASB and the IASB's joint project on the recognition and measurement of revenue represent a change of emphasis from the current IASB treatment?

A)Measurement should be reliable
B)The focus is on changes in the value of assets and liabilities
C)The fair value approach has been adopted as a working principle
D)B and C represent a change of emphasis from the current IASB treatment

Question 30

Explain and comment on the behavioural view of revenue.

Question 31

Explain why the point of sale '…is selected as being generally the most appropriate time to measure and record revenue… ' J.Godfrey,et el,'Accounting Theory',7^th Ed.p.306.