E&Y reasoned this as it creates an exception to the general rule of reserving for expected future product returns at the gross sales price and deferring the recognition of an equal amount of revenue. This justification is invalid. The company’s customers are not “ultimate customers,” but are wholesalers that sold their product to retailers. In addition, Medicis’s returns were not returns of products in exchange for products of “the same kind, quality, and price,” but of unsalable product for
* Milestone payment revenue should then be spread out on a pro rata basis as products are distributed under the license and distribution agreement. Differences under IFRS? * Since the agreement has just one deliverable, and the agreements went into effect at the same, no material difference exists when comparing GAAP and IFRS. * However, under IFRS, one could record revenue up-front, mainly from the milestone
Several factors including number and frequency of transactions increase the risk of error. Frauds can be through fraudulent financial reporting or misappropriation of assets (Boynton & Johnson, 2006). In the simulation, the 100% audited accounts were cash, intangibles, lines of credit, and paid in share capital. Why is materiality allocated only to those accounts that are sampled? Materiality is allocated only to those accounts sampled because the 100% verified accounts have no audit risk so materiality is not a factor (Apollo Group, 2004).
Memo To: Chip & Charles Carroway, Carroway Clothing Limited (CCL) From: Date: Re: Current accounting issues, employment benefits and financing options. Thank you for the opportunity to address the current accounting issues, employment benefits and financing options facing Carroway Clothing Limited (CCL) 1. SR& ED and Development costs treatment: In reviewing the financial statements it appears that the development costs and SR&ED treatment may not have been recorded appropriately. The SR&ED are tax credits to be used towards taxable income and should not have been recorded as government grants. Since CCL may not have needed them in the initial years, it can use SR&ED tax credits against taxable income
Which internal control principle, if any, is being violated? 15. Question : (TCO 3) A check written by the company for $167 is incorrectly recorded by a company as $176. On the bank reconciliation, the $9 error should be _________ ACCT 301 Week 6
If no service contract exists, those fees are recognized over the average customer relationship period. Associated expenses are deferred only to the extent of such deferred revenue. For contracts that involve the bundling of services, revenue is allocated to the services based on their relative fair value. AT&T Inc. records the sale of equipment to customers as gross revenue when AT&T Inc. is the primary obligor in the arrangement, when title is passed and when the products are accepted by customers. For agreements involving the resale of third-party services in which AT&T Inc. is not considered the primary obligor of the arrangement, AT&T Inc. records the revenue net of the associated costs incurred.
Spaulding v. Morse (369): stop yearly payment to trust during time in armed services - enforce according to terms if unambiguous, consider context if terms are ambiguous - not only context at time of contract formation, but also what happened AFTER ⇨ changed circumstances - why look at context? very few contingent contracts ➢ trade-off: value of completeness vs. value of time ➢ impossible to conceive of all contingencies C. Parol Evidence Rule
The Supreme Court has ruled that a professional gambler is entitled to deduct gambling losses as a trade of business expense. The fact that the taxpayer did not offer goods or services to others did not preclude characterization of the activities as a trade or business, rather, the appropriate “business” test was that the taxpayer must be involved in the activity with continuity and regularity and the taxpayer’s primary purpose for engaging in the activity must be for income or profit. (R.P. Groetzinger,87-1 USTC 9191 480 U.S. 23, 107 S Ct. 980 1987, 9622, 771 F.2d 269 (CA-7 1985). Since the expenses for lodging and travel you incurred were related to non business activities they would be considered personal expenses and as such cannot be deducted on his tax
In fact, it is often said that “Cash is King” because if a company can’t generate cash, it won’t survive. To aid in the analysis of cash, the statement of cash flow reports the cash effects of a company’s operating activities, investing activities and financing activities. If you knew the source of a company’s was generated from the operations of the business rather than borrowed, a cash flow statement provides that information. Similarly, net income does not tell you how much the company generated from operations. Neither the income statement, nor the balance sheet can directly answer most of the important questions about cash, but the cash flows statement
Blades revenues derive mainly from short-haul customer transportation and short-haul cargo transportation. For short-haul customer transportation and short-haul cargo transportation, revenues are recognized on the collection of payment. However, to comply with IFRS, we have to determine when the critical event needed to recognize revenue takes place; this is not necessarily when collection happens. Although cash is paid by customers, the performance has not been completed, and this does not meet the definition of revenue in accrual accounting basis. On the other hand, revenue can be recognized before payment is made.