Question

In: Accounting

in class we discussed a number of situations where a seller could recognize(at least some) revenue...

in class we discussed a number of situations where a seller could recognize(at least some) revenue before it had fully completed every obligation under a contract which of the following items does NOT represent one of these situations
a) a partially fulfilled sales contract with multiple performance obligations
b) a sales contract where cash collection is not probable
c) a partially completed sales contract that qualifies for revenue recognition overtime
d) a bill-and-hold sale
e) a sales contract with a return policy

Solutions

Expert Solution

Revenue is recognised when the following conditions has been satisfied :

(a) The seller has transferred the significant risks and rewards of ownership of the goods to the buyer.
(b) The seller does not retain control over the goods or managerial involvement with them to the degree usually associated with ownership.
(c) The amount of revenue can be measured reliably.
(d) It is probable that the economic benefits associated with the transaction will flow to the seller.
(e) The costs incurred or to be incurred by the seller in respect of the transaction can be measured reliably.

In all the situations given in the question, we can recognise some part of the revenue except in situation b i.e. a sales contract where cash collection is not probable From the above we can see that the one of the conditions for revenue recognition is "It is probable that the economic benefits associated with the transaction will flow to the seller".

Hence, in option b i.e. a sales contract where cash collection is not probable, we cannot recognize revenue.

ekkarill92 answered 2 years ago
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