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describe when and why and how much revenue should be recognized at a particular point in time or during a particular time period.

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  • Post Date 2018-11-07T11:09:15+00:00
  • Post Category New Samples

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describe when and why and how much revenue should be recognized at a particular point in time or during a particular time period. Show calculations and provide example journal entries for relevant accounting periods.

Metropolitan Environmental Services, Inc. A Case Study in Revenue Recognition Policy

INSTRUCTIONS:

Abstract: This case presents students with the challenge of using critical thinking skills to assess the best revenue recognition policy for a hazardous waste disposal firm applying the new revenue recognition rules approved by the FASB and the IASB. It also requires that students write the revenue recognition portion of the footnote on the firm’s significant accounting practices. As many nations adopt more principles-based accounting standards, it becomes critical that students develop their judgment skills during their education. This case requires students to use those skills and also to work on explaining accounting practices in such a way that a user of the financial statements can readily understand those practices. Required 1. For each scenario, and for each type of service (e.g., collection and decontamination, transportation, disposal), describe when and why and how much revenue should be recognized at a particular point in time or during a particular time period. Show calculations and provide example journal entries for relevant accounting periods. 2. Provide citations from the Accounting Standards Codification. Explain in your own words what the language in the codification means and how the language supports your recommendations. 3. In your answers to each scenario, be sure to discuss: whether revenue is recognized at a point in time or over time; what are the distinct performance obligations for each scenario and how this affects revenue recognition; how revenue is calculated for each scenario and time period and each service provided. 4. Draft a footnote (for Metropolitan’s financial statements) describing in plain language Metropolitan’s revenue recognition policies.  

CONTENT:
BUSINESS MEMORANDUM Metropolitan Environmental Services, Inc. A Case Study in RevenueStudent:Professor:Course title:Date:Metropolitan Environmental Services, Inc. A Case Study in RevenueA converged standard on recognition of revenue has been provided recently by the International Accounting Standards Board which worked in collaboration with the Financial Accounting Standards Board. Revenue is basically recognized whenever a client obtains control of a service or a good (Financial Accounting Standards Board, 2012). The new revenue recognition standard developed by IASB and FASB replaces almost all U.S Generally Accepted Accounting Principles revenue guidance with one model. The standard is codified within a new Topic 606 in the Financial Accounting Standards Board Accounting Standards Codification (ASC). It is based upon the following five-step model: Step i: Identifying a contract with a client. Step ii: identifying performance obligations. Step iii: Determining the price of the transaction. Step IV: Allocating the price of the transaction to the performance obligations. Step v: Recognizing revenue as/when performance obligations are met (GrantThornton, 2014). The FASB Accounting Standards Codification 606 necessitates that revenue has to be recognized as the work is carried out if, and only if, control over the promised services/goods to the client over time (GrantThornton, 2014).Customers obtain control when they have the ability of directing the utilization of and obtaining the benefits from the service/good. In essence, revenue is recognized whenever an organization fulfills its performance obligation by simply transferring a promised service/good to a client. After an entity has established what actually makes up the performance obligation, it would be essential, under the new guidance, to find out whether or not revenue has to be recognized at a particular point in time or over time (Lamoreaux, 2012). Performance obligations satisfied at a specific point in timeA performance obligation is typically satisfied at a specific point in time incase the performance cannot be satisfied over time. This type of revenue recognition will take place at the point that control of a given asset is moved to the client. In determining the specific point in time at which a client gets control of a promised asset and that entity satisfies a performance obligation, that entity needs to consider the guidance on control FASB ASC 606-10-25-25 to 25-26 (American Institute of CPA, 2014).Performance obligations satisfied over timeConversely, revenue recognized over time necessitates that there be continuous transfer. Simply put, according to the Financial Accounting Standards Board (2012), revenue recognition over time would be apt in situations when: (i) the client gets and consumes a benefit as the contractor performs. This is described in FASB ASC 606-10-55-5 up to 55-6. (ii) Another entity will not have to re-do the task done to date if they were to take over fro...

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