Cost Accounting Units of Delivery
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Questions and Answers

What is the first step in the 5-step revenue recognition model?

  • Identify the contract(s) with a customer (correct)
  • Identify the performance obligations
  • Determine the transaction price
  • Recognise revenue when satisfying an obligation

    • Which of the following characteristics must a contract possess?

  • It creates enforceable rights and obligations (correct)
  • It must have a written document
  • It cannot be modified once agreed upon
  • It must include a specific payment term

    • What defines a performance obligation (PO) within a contract?

  • A vague agreement without identified effects
  • An informal promise to provide assistance
  • A distinct good or service promised in the contract (correct)
  • A general understanding of customer service

    • Which of the following statements about payment terms in a contract is true?

    <p>They can be identified for each party involved</p> Signup and view all the answers

    What should be considered when determining if goods or services are distinct performance obligations?

    <p>If customers can consume them on their own</p> Signup and view all the answers

    What does the concept of commercial substance in a contract refer to?

    <p>The impact on the entity's cash flows</p> Signup and view all the answers

    What is a requirement for recognizing revenue related to performance obligations?

    <p>Revenue is recognized when the obligation is satisfied</p> Signup and view all the answers

    How can performance obligations be categorized?

    <p>As distinct and interrelated obligations</p> Signup and view all the answers

    What is the percentage of completion based on the cost-to-cost method?

    <p>40%</p> Signup and view all the answers

    What is the amount of gross profit reported at the end of 2019 for the contract?

    <p>RM2,000,000</p> Signup and view all the answers

    How much was the total revenue recognized from the long-term contract in 2019?

    <p>RM8,000,000</p> Signup and view all the answers

    What is the balance in progress billings representing the amount billed in excess of costs and recognized profit?

    <p>RM3,250,000</p> Signup and view all the answers

    What amount represents current liabilities related to progress billings as of 31.12.2019?

    <p>RM3,250,000</p> Signup and view all the answers

    What is included in the transaction price when determining revenue from a performance obligation?

    <p>Both fixed and variable amounts, if applicable</p> Signup and view all the answers

    Which method can be used to estimate variable consideration?

    <p>Probability weighted expected value or most likely amount</p> Signup and view all the answers

    In the car retailer example, how much revenue is recognized for the sale of the car?

    <p>RM17,150</p> Signup and view all the answers

    What does the difference between the cash price and the amount receivable represent?

    <p>Finance income recognized over time</p> Signup and view all the answers

    What is the carrying amount of the receivable on the sale of the car?

    <p>RM18,522</p> Signup and view all the answers

    What type of consideration can variable amounts be in?

    <p>Cash or non-cash</p> Signup and view all the answers

    What is the finance cost percentage applied to the transaction in the car retailer example?

    <p>8%</p> Signup and view all the answers

    How is the total revenue recognized impacted by the timing of payment?

    <p>It is based on the cash price, regardless of payment timing</p> Signup and view all the answers

    What is the main objective when allocating the transaction price?

    <p>To allocate the transaction price to each performance obligation in an amount that represents expected consideration.</p> Signup and view all the answers

    How should the transaction price be allocated if a stand-alone price can be established?

    <p>The entity may estimate the stand-alone transaction price.</p> Signup and view all the answers

    In the example of the mobile phone company, what are the two performance obligations identified?

    <p>Provision of the handset and provision of network services.</p> Signup and view all the answers

    When is revenue recognized under IFRS 15?

    <p>When performance obligations are satisfied.</p> Signup and view all the answers

    How can performance obligations be satisfied over time?

    <p>By gradually recognizing revenue over the contract period rather than at completion.</p> Signup and view all the answers

    What triggers the satisfaction of a performance obligation?

    <p>Delivery and transfer of control to the customer.</p> Signup and view all the answers

    What portion of revenue is recognized when the handset is delivered in the mobile phone example?

    <p>A portion for the handset, the remainder as services are provided.</p> Signup and view all the answers

    What does the term 'transaction price' refer to in revenue recognition?

    <p>The total amount of consideration an entity expects to receive in exchange for goods or services.</p> Signup and view all the answers

    What basis does Binaan Sdn Bhd use to measure progress towards completion of the contract?

    <p>Cost-to-cost basis</p> Signup and view all the answers

    What was the total cost incurred to date for Binaan Sdn Bhd at the end of the first year?

    <p>RM6,525,000</p> Signup and view all the answers

    How much was the total contract price for Binaan Sdn Bhd?

    <p>RM20,000,000</p> Signup and view all the answers

    Which of the following costs was INCLUDED in the RM6,525,000 of costs incurred?

    <p>Cost of materials stored on the job site</p> Signup and view all the answers

    What was the amount billed to date for the project?

    <p>RM9,500,000</p> Signup and view all the answers

    What must costs incurred contribute to when using a cost-based method?

    <p>Satisfying the performance obligation</p> Signup and view all the answers

    What was the indirect costs incurred reported by Binaan Sdn Bhd?

    <p>RM965,000</p> Signup and view all the answers

    How is the percentage of completion determined by Binaan Sdn Bhd?

    <p>Based on costs incurred relative to total estimated costs</p> Signup and view all the answers

    Study Notes

    Delivery Units and Revenue Recognition Methods

    • Revenue can be recognized based on the value delivered to customers through goods or services.
    • Performance can be assessed via completed surveys or units produced.
    • Cost-to-cost method bases recognition on input costs such as labor hours or incurred expenses.
    • Input costs must reflect progress towards fulfilling performance obligations.

    Case Study: Binaan Sdn Bhd

    • Contract price for construction project: RM20,000,000.
    • Estimated cost to complete: RM15,000,000, broken down as follows:
      • Direct labor: RM4,250,000
      • Materials/subcontractors: RM8,750,000
      • Indirect costs: RM2,000,000
    • Total costs incurred by end of Year 1: RM6,525,000.

    Revenue Recognition Steps

    • Step 1: Identify the Contract

      • Must be approved, with enforceable rights and obligations.
      • Must specify each party's rights and payment terms.
      • Must have commercial substance affecting cash flows.

    • Step 2: Identify Performance Obligations (PO)

      • Defined as promises to deliver distinct goods or services.
      • Performance obligations can be explicit or implicit.
      • Distinct goods/services can be consumed independently by customers.

    • Step 3: Determine the Transaction Price (TP)

      • Expected earnings from promised goods/services.
      • May comprise fixed or variable amounts.
      • Variable consideration must be estimated based on probability-weighted amounts.

    Examples of Transaction Pricing

    • Car retailer example:
      • Cash price of RM17,150 versus deferred payment of RM20,000.
      • Revenue recognized as RM17,150 with finance income of RM1,372.

    Allocating Transaction Price

    • Transaction price must be allocated to each performance obligation.
    • Stand-alone transaction prices should be utilized for allocation when identifiable.

    Example of Revenue Allocation

    • Mobile phone company scenario includes:
      • Handset (stand-alone price of £800) and network service (£60/month).
      • Revenue recognized upon delivery of the handset, with remaining revenue recognized over the service period.

    Recognizing Revenue

    • Revenue recognized when performance obligations are satisfied, typically upon transfer of control.
    • Under cost-to-cost method, revenue recognition correlates with the percentage of costs incurred to estimated total costs.
    • In Binaan Sdn Bhd's case, 40% of the total estimated costs leads to a revenue recognition of RM8,000,000.

    Financial Position Statement

    • Accounts receivable at year-end: RM1,750,000 (billings to date minus cash collected).
    • Current liabilities: Progress billings of RM3,250,000 (billings to date minus recognized revenue).

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    Description

    Explore the various units of delivery based on customer value and entity input through this quiz. Understand concepts like cost-to-cost and performance appraisal for a better grasp of cost accounting principles. Perfect for students looking to deepen their knowledge in financial assessments.

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