2023 CFA Level I Exam: Learning Outcome Statements

which of the following is not true about accounting for long-term construction contracts

This post explores when and how that significant financing component should be recognized. ASC 606 requires us to consider collectibility to determine if a contract exists but what happens if things change after the contract is signed? This post explores if, and when, an entity may need to re-evaluate the collectibility of a contract, and what it means for revenue recognition. The Boards concluded that assurance-type warranties do not provide an additional good or service to the customer (i.e., not a separate performance obligation). By providing this type of warranty, the selling entity has effectively provided a guarantee of quality. Under the standard, these types of warranties are accounted for as warranty obligations, and the estimated cost of satisfying them is accrued in accordance with other relevant guidance.

which of the following is not true about accounting for long-term construction contracts

Therefore, the entire $300,000 amount is recognized as expense in 2005. Changes in market price in future years, before the rights are exercised, are recognized on a current and prospective basis . C. For stock-appreciation rights plans payable in cash, compensation expense is recognized only during the service period. An employee covered by a post-retirement healthcare plan just completed her 18th year of service for a firm. Each year of employment to full eligibility provides credit for post-retirement healthcare benefits for this firm. She must work an additional seven years from today to be eligible for 75% healthcare coverage during retirement.

IAS 18 — Sales of real estate

The cost of investment to Pesto is $350,000, consisting of $200,000 cash and $150,000 fair value of stock issued (10,000 shares x $15 per share). The fair value of Nexto’s net assets is $360,000 ($480,000 assets – $120,000 liabilities). Therefore, the fair value of the net assets exceeds the cost of the investment by $10,000, resulting in a bargain purchase gain. Foy Corp. failed to accrue warranty costs of $50,000 in its December 31, 2003 financial statements. In addition, a change from straight-line to accelerated-depreciation made at the beginning of 2004 resulted in a $30,000 decrease in income for the year.

The after-tax difference is .70($6,000) or $4,200. Accounting changes are measured as of the beginning of the year of change. This is the “ending” inventory for that firm, as of that date, for the firm’s entire existence.

Joint IASB-FASB discussion paper on revenue recognition

Recent legislation assures that the market price will not fall below $.70 per pound during the next two years. Lake paid $75,000 cash on January 1, 2005 and signed a $450,000 note, bearing interest at 10%. The increase in cost from earlier periods owing to wage increases in 2005. The issuance of warrants to shareholders does not require a journal entry, because no resources are expended or received. Therefore, in 2003, there is no effect on owners’ equity.

It organizes job costing, tracks profitability and helps with tax compliance. It can support multiple revenue recognition methods and billing construction bookkeeping schemes. Choosing the right software will reduce administrative burden, provide meaningful analysis and improve overall efficiency.

History of IAS 11

The customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer. The parties to the contract have approved the contract and are committed to perform their respective obligations. Detailed documentation of project milestones and completion status can mitigate the possibility of fraud, but cannot eliminate it. The percentage-of-completion method is used under both IFRS and GAAP.

Share:

Leave a Reply

Your email address will not be published. Required fields are marked *