Question

1, what are the criteria that must be met in order to recognize revenue from the sale of goods? (200 words)

2, what are the type of difference that exist between IFRS and U.S GAAP ?(200 words)

Answer 1

Question 1

Revenue recognition simply means that revenue should be record, when it has been earned but not when related cash is collected. Revenue are recognized when they are realized and earned but it doesn't matter when cash is received.

According to IFRS criteria, for revenue recognition following conditions must be satisfied:

a. Risk and reward of ownership have been transferred from the seller to buyer.  

b. Seller does not have any control over the goods sold.

c. Collection of payment from the goods and services is assured.

d. Amount of revenue can be reasonably measured.

e. Cost of revenue can be reasonably measured.

There are mainly 3 points which need to be considered when there is a revenue recognition, i.e., Performance, Collectibility and Measurability.

Performance includes what the seller has done to be entitled for the payment. It includes risk and reward of ownership that have been transfered from the seller to the buyer and also the seller does not have any control over the goods that are sold by him.

Collectibility includes seller must have the reasonable expectation that they will be paid for the performance they performed earlier. It includes the collection of payment from the goods and services is reasonably assured.

Measurability includes that the seller must be able to match the revenue with the expenses. It includes amount of revenue can be reasonably measured and cost of revenue that will be reasonably measured.

Question 2

IFRS stands for International Financial Reporting Standard and GAAP stands for Generally Accepted Accounting Principles.

Following are the differences between IFRS and US GAAP:

1.) IFRS is used globally including EU, American and Asian countries. Whereas GAAP is only used locally that operate in US only.

2.) IFRS allows first in first out (FIFO), weighted average method for valuing inventories. Whereas GAAP allows first in first out (FIFO), last in first out (LIFO), weighted average method for valuing inventories.

3.) In IFRS, assets such as land, building and equipment are initially valued at cost but then revalued to market value. In GAAP, above assets are valued in historic cost and then depreciated accordingly.

4.) IFRS tends to be more principles based. IFRS based principles how they are going to be applied in a particular situation. whereas GAAP tends to be more rules based. In this, companies have different rules and regulations to follow.

5.) IFRS allows impairement losses to be reversed for all the types of assets except goodwill. Whereas in GAAP, prohibits of impairement losses for all the types of assets.

6.) IFRS allows the earlier inventory write-down to be reversed. Whereas in GAAP, reversal of earlier inventory write-down is prohibited in this case.

7.) In IFRS, revaluation of fair value of assets is done. Whereas in GAAP, revaluation of fair value of assets is prohibited except in the case of marketable securities.