Question

5. Compare and contrast the revenue recognition criteria for the sale of goods with those for the rendering of services.

Answer 1

Compare and contrast the revenue recognition criteria for the sale of goods with those for the rendering of services.Revenue from the sale of goods can be recognised when the following conditions have been satisfied:

a.The entity has transferred to the buyer the significant risks and rewards of ownershipof the goods;

b.The entity retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;

cThe amount can be reliably estimated it is probable that the economic benefits associated with the transaction will flow tothe entity; and the costs incurred or to be incurred in respect of the transaction can be measuredreliably.

On the other hand, the revenue from a service transaction can be recognised when all of thefollowing conditions are satisfied:

a.the amount of revenue can be measured reliably;

b.it is probable that the economic benefits associated with the transaction will flow tothe entity;

c.The stage of completion of the transaction at the end of the reporting period can bemeasured reliably; and

d. The costs incurred for the transaction and the costs to complete the transaction can bemeasured reliably.