Revenue Recognition Issues

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Question 1
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True/False

Unearned revenues are assets treated as liabilities,as these are received by a business for services to be performed at a future date.

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Question 2
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When it is probable that total contract costs will exceed total contract revenue,the expected loss should not be recognised as an expense until the future economic sacrifice eventuates.

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Question 3
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If the borrower prepays interest,the inflow of future economic benefits represented by the prepayment would not constitute an item of revenue to the lender because the lender has a present obligation to the borrower to provide finance for the period to which the prepayment relates.

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Question 4
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Accounting standards require that the provision for doubtful debts should be shown as a deduction from the class of assets to which it relates.The net expense in relation to bad and doubtful debts must also be disclosed.

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Question 5
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True/False

Gains never arise from the ordinary activities of an entity.

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Question 6
True/False

Where the percentage-of-completion method is based on costs,costs that relate to the contract activity generally and are not normally related to specific contracts,such as finance costs,should be allocated across the projects currently in progress.

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False
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Question 7
True/False

Gains must be reported net of related expenses.

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Question 8
True/False

When making a provision for doubtful debts,debtors' subsidiary ledgers are not adjusted,as the provision is made in anticipation of likely non-recoverability of amounts owing,although the identity of who will not pay is unknown.

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Question 9
True/False

With the percentage-of-completion method of accounting for construction contracts,profit is recognised in proportion to the work performed in each reporting period.

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False
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Question 10
True/False

Interest revenue is derived from borrowing resources from another entity.

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True
False
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Question 11
Multiple Choice

Revenues may be generated by:

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A
holding and disposing of inventory in the normal course of business.
B
having a liability forgiven.
C
receiving a donation.
D
all of the given answers.
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Question 12
Multiple Choice

The general rule under modified historical-cost accounting is that holding gains on non-current assets should be:

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A
treated as revenue in the period that the fair value of the asset changes.
B
deferred and amortised over the life of the asset (effectively decreasing depreciation expense).
C
recognised as part of income and hence, of total comprehensive income
D
never recognised.
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Question 13
Multiple Choice

Under the IASB Conceptual Framework income is now subdivided into:

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A
revenues, which only include sales, fees, interest, dividends, royalties and rent; gains, which are no different in nature to revenue.
B
gains, which are regarded as constituting a separate element in the framework; revenues, which may only arise in the course of the ordinary activities of the entity.
C
revenues, which arise in the course of the ordinary activities of the entity; gains, which may or may not arise in the course of the ordinary activities of the entity.
D
increases in equity referred to as gains; reductions in liabilities which are classified as revenues.
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Question 14
Multiple Choice

The following is a diagram of the earnings cycle as presented by Coombes and Martin (1982). image Because of uncertainty and depending on which measurement model is being applied,revenue recognition will take place at a limited number of points in the earnings cycle.In traditional historical-cost accounting,in most cases,at which point in the cycle above have revenues been recognised?

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A
Point 5
B
Point 8
C
Point 7
D
Point 9
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Question 15
Multiple Choice

The following is a diagram of the earnings cycle as presented by Coombes and Martin (1982). image In the traditional historical-cost accounting model,at what point has revenue been recognised for long-term construction contracts in the building industry?

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A
Point 8
B
Point 4
C
Point 6
D
Point 5
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Question 16
Multiple Choice

The following is a diagram of the earnings cycle as presented by Coombes and Martin (1982). image For products such as precious metals or agricultural products revenue is recognised at which point in the earnings cycle shown above?

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A
Point 1
B
Point 4
C
Point 6
D
Point 7
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Question 17
Multiple Choice

Revenue recognition under IASB (2011)Revenue from Contracts with Customers requires that:

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A
the entity has transferred to the buyer the significant risks and rewards of ownership.
B
the entity retains neither continuing managerial involvement to the degree normally associated with ownership nor effective control over the goods.
C
the costs incurred or to be incurred can be measured reliably.
D
there should be a direct function of the transfer of control of the goods and services to the customer.
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Question 18
Multiple Choice

Kringle Company has agreed to provide services to North to South Plc in exchange for a piece of equipment and a cash payment.The equipment is currently recorded in North to South's books at €73 000 but independent assessors have set the fair value at €65 000.The cash payment of €20 000 will be received 12 months after completion of the services.Kringle should record revenue as:

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A
€85 000
B
€65 000 in the current period, €20 000 next period
C
€93 000
D
€65 000 plus the present value of the €20 000 cash component
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Question 19
Multiple Choice

An entity shall recognise revenue from a contract when:

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A
the entity has satisfied the performance obligation.
B
the goods or service have been transferred to the customer.
C
the customer obtains control of the goods or service.
D
All of the given answers are necessary for recognition of revenue from a contract.
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Question 20
Multiple Choice

In the situation that a debtor becomes unable to pay and the amount has not been anticipated through a provision for doubtful debts,what is the entry to record the bad debt?

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A
Dr Debtors; Cr Provision for doubtful debts
B
Dr Provision for doubtful debts; Cr Debtors
C
Dr Bad debts expense; Cr Cash
D
Dr Bad debts expense; Cr Debtors
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