Question

a.
An apartment owner receives a deposit of? $1200 equal to one? month's rent.
b.
An insurance company receives annual premiums for fire insurance on June 25 for coverage beginning July 1.
c.
A city transit authority issues? 200,000 monthly passes at? $80 each for sale at various retailers. Retailers act as consignees for these passes.
d.
A city transit authority sells? 50,000 monthly passes at? $80 each to transit riders at its own retail? offices/stores.
e.
A provincial lottery corporation delivers 10 million? scratch-and-win cards to retailers. The cards retail for? $2 and generate a commission of? $0.20 per card for the retailer. The retailer can return unsold cards to the lottery corporation.

1.
Identify the contract with the customer.
2.
Identify the performance obligations.
3.
Determine the transaction price.
4.
Allocate the transaction price to performance obligations.
5.
Recognize revenue in accordance with performance

For each of the preceding? circumstances, identify which revenue recognition? criterion/criteria is/are NOT met at the point of? sale, preventing the recognition of revenue at that time. ?(Italics identify the entity for which you are? accounting.)

Answer 1

1. An apartment owner receives a deposit of? $1200 equal to one? month's rent Ans. It is a Service contract. The tenenat who needs flat in apartment has to pay advance rent of $ 1200 i.e, for one month. The owner let out the flat to the person who pays advance rent. The Transaction price is $ 1200 per month. The transaction price is asset to the tenant and liability for the owner unless the same is adjusted for any month's rent. It is not probable that the future economic benefits (from that depost) will flow to the owner.

2. An insurance company receives annual premiums for fire insurance on June 25 for coverage beginning July 1. Ans. It is a Service contract. The insurance company is collecting annual premiums for fire insurance from its clients on June 25 for coverage beginning July 1. Any losses incurred on account of fire by the insured person was reimbursed with such amount of loss by the insurance company for that insured year The Transaction price is premium. The Insurance company will record the premium amounts as revenue on completion of Insurance coverage period. The premium amounts are not revenue to the insurance company since the coverage period has not started yet i.e., after july 1.

3.A city transit authority issues 200,000 monthly passes at $80 each for sale at various retailers. Retailers act as consignees for these passes. Ans. sale of goods. The city transit authority issue monthly passes for sale at various retailers. Here Reatailers act as consignees for theses passes. The Transaction price is 200,000 at rate $ 80. the above transaction does not generates any revenue to the city transit authority as the risks and rewards associated with these passes are not transferred to final buyers.

4. A city transit authority sells 50,000 monthly passes at $80 each to transit riders at its own retail offices/stores Ans. It is a Service contract. The city transit authority sells monthly passses to the transit dealers at its own retail stores. Here retailers has there own strores The transaction price is $ 80 for each pass Income should be recognized according to the completion stage. Complete revenue was recorded on expiry of time period attached to the pass

5. A provincial lottery corporation delivers 10 million scratch-and-win cards to retailers. The cards retail for $2 and generate a commission of $0.20 per card for the retailer. The retailer can return unsold cards to the lottery corporation Ans. It is a sale of goods contract. The lottery company is selling its cards to the retailers. The retailer gets commision on sale of every ticket. The unsold tickets are returned to the Lottery company. Income will be recognized by the lottery corporation after the transfer of risks and rewards to the ultimate buyer of tickets & completion of lottery event but the agents will earn the commision income on sale of tickets to the cutomers