Expense Recognition
Expense Recognition - Outflows or “using up” of assets
or incurring of liabilities during a period as a result of delivering
or producing goods and/or rendering services.
ILLUSTRATION 2.6
Expense Recognition Procedures for Product and Period Costs
LO 4
New Revenue Recognition Standard
ILLUSTRATION 18.1 Key Concepts of Revenue Recognition
Performance Obligation is Satisfied
LO 1
Extended Example of Five-Step Process
Identifying the Contract with Customers—Step 1
Assume that Tyler Angler orders a large cup of black coffee costing $3
from BEAN. Tyler gives $3 to a BEAN barista, who pours the coffee
into a large cup and gives it to Tyler.
Question: How much revenue should BEAN recognize on this
transaction?
LO 1
Extended Example of Five-Step Process
Step 1: Identify the contract with customers.
1. The contract has commercial substance: Tyler gives cash for the
coffee.
2. The parties have approved the contract: Tyler agrees to purchase
the coffee and BEAN agrees to sell it.
3. Identification of the rights of the parties is established: Tyler has the
right to the coffee and BEAN has the right to receive $3.
4. Payment terms are identified: Tyler agrees to pay $3 for the coffee.
5. It is probable that the consideration will be collected: BEAN has
received $3 before it delivered the coffee.
It appears that BEAN and Tyler have a valid contract with one another.
LO 1
Extended Example of Five-Step Process
Step 2: Identify the separate performance obligations.
BEAN has a performance obligation to provide a large cup of coffee
to Tyler.
BEAN has no other performance obligation for any other good or
service.
Step 3: Determine the transaction price.
The price of the coffee is $3, and no discounts or other adjustments
are available. Therefore, the transaction price is $3.
LO 1
Extended Example of Five-Step Process
Step 4: Allocate the transaction price to the separate
performance obligations.
Given that BEAN has only one performance obligation, no allocation
is necessary.
Step 5: Recognize revenue when each performance
obligation is satisfied.
BEAN satisfies its performance obligation when Tyler obtains control
of the coffee.
BEAN should recognize $3 in revenue from this
transaction when Tyler receives the coffee.
LO 1
Comprehensive Income
All changes in equity during a period except those resulting
from investments by owners and distributions to owners.
Includes:
◆
all revenues and gains, expenses and losses reported in
net income, and
◆
all gains and losses that bypass net income but affect
equity.
LO 5
Comprehensive Income
Net Income
+
Other Comprehensive
Income
◆
Unrealized gains and
losses on non-trading
equity securities.
◆
Translation gains and
losses on foreign
currency.
◆
Plus others
Reported in Equity
LO 5
Comprehensive Income
Companies must display the components of other comprehensive
income in one of two ways:
1. A single continuous statement (one statement approach) or
2. two separate, but consecutive statements of net income and
other comprehensive income (two statement approach).
LO 5
Comprehensive Income
One Statement Approach
ILLUSTRATION 4.21
One Statement Format:
Comprehensive Income
Advantage –
does not require
the creation of a
new financial
statement.
Disadvantage net income buried
as a subtotal on
the statement.
LO 5
Comprehensive Income
Two Statement
Approach
ILLUSTRATION 4.22
Two Statement Format:
Comprehensive Income
Illustration 4-19
Reference:
Kieso, Donald E, Jerry J. Weygandt, and Terry D.
Warfield. 2020. Intermediate Accounting. IFRS 4th
Edition. John Wiley & Sons, Inc.: USA.