Revenue — ASPE Flashcards
(20 cards)
What are the criteria to recognize revenue according to ASPE 3400?
- Performance has been achieved
- Revenue can be measured reliably
- Collection is reasonably assured
What condition must be met for performance to be considered achieved?
*Persuasive evidence of an arrangement exists
*Delivery
*Price is fixed or determinable
What factors can impact persuasive evidence of an arrangement?
- Customary business practices
- Side arrangements
- Consignment arrangements
- Customer’s right of return
- Repurchase requirements
What are the legal terms of contract regarding delivery?
- FOB shipping — title transfers when goods leave seller’s warehouse
- FOB destination — title transfers when goods arrive at customer location
What complicates the determination of a fixed or determinable price?
- Cancellable sales arrangements
- Right of return
- Price protections
- Refundable fees
Under what conditions is revenue from the sale of goods recognized?
When the seller has transferred the significant risks and rewards of ownership to the buyer
What methods are used to recognize revenue for long-term contracts?
- Percentage of completion method
- Completed contract method
When is revenue recognized under the percentage of completion method?
As the service or contract activity is performed
What is the completed contract method?
Recognizing revenue at the completion of the contract
When is revenue from interest recognized?
When the amount can be measured and is determined to be collectable
When is dividend income recognized?
When the dividend is declared
How are payments from a seller to a customer recognized?
- Discounts and rebates are netted against revenue
- Reimbursement of specific costs is recognized as a separate cost
- Goods or services provided by the customer are treated as a separate transaction
What criteria must be met for multiple deliverables to be recorded separately?
- Performance of any remaining deliverables is probable
- Deliverables have value on a stand-alone basis
How is the purchase price allocated in a bundled sale?
Using the relative stand-alone selling prices of each of the deliverables
What are the methods of estimating stand-alone selling prices?
- Adjusted market assessment approach
- Expected cost plus a margin approach
What should be considered if the commercial effect of a transaction cannot be understood without reference to the series of transactions as a whole?
The selling price should not be allocated to separate deliverables
What factors can affect the selling price in a sales contract?
- Cancellable sales arrangements
- Right of return
- Price protections / inventory credit arrangements
- Refundable fees for service
When should refundable fees for service be recognized in revenue?
Until the cancellation period is over, unless the amount of fees that will be refunded can be estimated
True or False: Revenue is recognized from sales where returns can be estimated.
True
When is revenue recognized under the completed contract method
Revenue is recognized at the completion of the contract.
This method is only appropriate when performance of a service consists of a single act or when the extent of progress toward completion cannot be reliably measured.
