Indicate whether the statement is true or false. Provide at least 3 consideratio
ID: 2560538 • Letter: I
Question
Indicate whether the statement is true or false. Provide at least 3 considerations (explanations) for your determination of T/F
1- The FASB has considered promulgating standards for recognizing revenue (1) before delivery, (2) at delivery and (3) after delivery. It has concluded that recognizing revenue after delivery is never appropriate.
2- Under accounting standards codification Topic 606, Revenue from contacts with customers, identifying the contract and contract price is considered a single step in the 4 steps revenue recognition process.
3- An asset that fails the impairment test requiring an impairment loss potentially could result in a reduction in the useful life for depreciation purposes. This change would be considered a change in principle thereby requiring retrospective restatement.
Explanation / Answer
1.
False.
a. Revenue has to be recognised when it is earned and payment is assured. In sale of goods, revenue should be recognized after the property in goods is transferred from buyer to seller. Till delivery, the property in goods is not transferred.
b.) Till delivery, the seller retains effective control over the goods. Hence revenue recognition is not appropriate.
However, there are exceptions, where revenue can be recognised before delivery; Examples are
2.
Answer: False.
In the codification, identifying contract and contract price is considered in two separate steps such as, identifying contract with a particular customer, if the specified criteria is satisfied.
The contract price is mentioned in a separate step, which is explained as the amount of consideration in a contract to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer.
3.
Answer: False
The impairment loss is recognized whenever the recoverable amount is below the carrying amount. As a result of reduction in carrying amount, the deprecation on the asset will also get reduced. However, the adjustment for the depreciation is only for prospective (future) periods and not on retrospective basis.
Applying deprecation is an “Accounting estimate”. As per IAS 8, any change in accounting estimates must be accounted for “prospectively” in the financial statements. Hence, depreciation change on account of impairment should also be accounted only prospectively.