Throughout the answers, we will refer to SAB 101 and IAS NO.18 as mentioned below:
SAB 101 – Revenue Recognition Guidelines:
Rule 1: Persuasive evidence of an order arrangement exists;
Rule 2: Delivery of the ordered goods has occurred or services have been rendered;
Rule 3: The seller’s price to the buyer is fixed or determinable;
Rule 4: Collectability of the sale proceeds is reasonably assured;
International Accounting Standards NO.18:
Rule a: The entity has transferred to the buyer the significant risks and rewards of ownership of the goods;
Rule b: The entity retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;
Rule c: The amount of revenue can be measured reliably;
Rule d: It is probably that the economic benefits associated with the transaction will flow to the entity;
Rule e: The costs incurred or to be incurred in respect of the transaction can be measured reliably; 1. What pre SAB 101 revenue recognition methods has Wareham SC Systems adopted? Which of these policies are most likely to be impacted by SAB 101?
Methods Adopted: * Product revenue is recognized upon shipment. * Unbundled service revenue is recognized upon amounts charged when sold separately from product, installation of maintenance services. * For certain contracts, percentage-of-completion method based upon efforts-expended revenue recognition model is used. * Changes to total estimated costs and anticipated losses are recognized in the period in which determined.
Policies to be impacted: Product revenue is recognized upon shipment. | Rule 2: service revenue will be recognized when the service is rendered instead of being provided. | Unbundled service revenue is recognized upon amounts charged when sold separately from product, installation of maintenance services. |