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Questions and Answers
On 1 July 20X5, AX, a construction company, entered into a two-year contract to build a property for a customer on the customer's land. The contract specifies that control of the property is transferred to the customer as it is constructed. The position of the contract at 30 June 20X6 is as follows:
Contract price
At 30 June 20X6
Costs to date
Estimated costs to completion
Progress payments invoiced and received
Work certified
$900,000
$600,000
$200,000
$500,000
$540,000
AX wishes to use an input method to assess progress towards complete satisfaction of its performance obligation.
How much revenue should AX recognise in relation to this contract for the year ended 30 June 20X6?
On 1 July 20X5, AX, a construction company, entered into a two-year contract to build a property for a customer on the customer's land. The contract specifies that control of the property is transferred to the customer as it is constructed. The position of the contract at 30 June 20X6 is as follows:
Contract price
At 30 June 20X6
Costs to date
Estimated costs to completion
Progress payments invoiced and received
Work certified
$900,000
$600,000
$200,000
$500,000
$540,000
AX wishes to use an input method to assess progress towards complete satisfaction of its performance obligation.
How much revenue should AX recognise in relation to this contract for the year ended 30 June 20X6?
On 1 December 20X5, FC received a non-refundable upfront fee of $80,000 for services. The services will be provided from February to March 20X6.
What is the correct accounting treatment for this fee in the year ended 31 December 20X5?
On 1 December 20X5, FC received a non-refundable upfront fee of $80,000 for services. The services will be provided from February to March 20X6.
What is the correct accounting treatment for this fee in the year ended 31 December 20X5?
On 31 December 20X2, SL sold goods to a customer for $100,000 on a sale or return basis. Historically, 40% of goods sold to this customer have been returned.
How much revenue should SL recognise in relation to this sale for the year ended 31 December 20X2?
On 31 December 20X2, SL sold goods to a customer for $100,000 on a sale or return basis. Historically, 40% of goods sold to this customer have been returned.
How much revenue should SL recognise in relation to this sale for the year ended 31 December 20X2?
Study Notes
Contract Recognition for AX
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Construction company AX entered a two-year contract on July 1, 20X5, to build a property.
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Control of the property transfers to the customer as construction progresses.
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At June 30, 20X6, the contract details are:
- Contract price: $900,000
- Costs to date: $600,000
- Estimated costs to completion: $200,000
- Progress payments (invoiced and received): $500,000
- Work certified: $540,000
-
AX uses an input method for progress assessment.
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Revenue recognition for the year ended June 30, 20X6: $540,000
Accounting Treatment for FC's Upfront Fee
- On December 1, 20X5, FC received a $80,000 non-refundable upfront fee for services.
- The services are provided from February to March 20X6.
- The correct accounting treatment for the year ended December 31, 20X5, is to recognize a contract asset of $80,000.
Revenue Recognition for SL's Sale
- On December 31, 20X2, SL sold goods to a customer for $100,000, on a sale or return basis.
- Historically, 40% of goods sold to this customer are returned.
- Revenue recognized for the year ended December 31, 20X2: $60,000.
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Description
This quiz covers key concepts of revenue recognition, including methods used in construction contracts and treatment of upfront fees. It tests your understanding of various scenarios related to accounting practices in recognizing revenue and contract assets. Brush up on your knowledge of these important accounting principles!
