Question

1 Please briefly discuss:

a. methods of dealing with the allocation problem.

b. the general rules related to revenue recognition.

c. the general rules for allocating tax expenses between periods.

Answer 1

a)

The following are the methods of dealing with allocation problem:

1) Scope of the project : Before allocating the resources in project, the project manager should know the scope of project i.e. whether it is small project, big project or average project.

2) Identifying resources : After knowing the scope, the project manager should identify the resources which is to be utilised in a particular project.

3) Use different tools : Using different tools online and offline to keep an eye on the resources and their utilisation in the project.

4) Monitoring project: Project manager should have structured routine and follow the routine to monitor the project.

b)

The general rule related to revenue recognition are as follows:

- there is transfer of ownership in goods to other party

- Risk and reward with regard to ownership has also been transferred. Risk relates to risk of damage, risk of price change etc. and reward relates to reward of any price change etc.

- there is no uncertainty with regard to collection and its ultimate payment of goods or services.

c)

General rule for allocating tax expenses between periods:

There are basically two types of taxes, first one is current income tax and another one is deferred income tax. Current income tax is calculated on those income which has been recorded in the books of accounts and the same has been recognised by income tax authorities for the purpose of taxation. But sometimes there are incomes which has been recorded in the books in the current period but income tax authorities do not recognize it in the current period and they want to defer to another period then taxes on such income are recorded as deferred tax liability in the books of accounts. Examples of such instances are differences in the amount of depreciation between management and tax department, differences in recognition of rental income and finance income.