Respond to the questions related to the following statements services to the cus

Question

Respond to the questions related to the following statements services to the customer nor receiv contracts not recorded in the accounts? s one in which the company has neither transferred the promised goods or ed, or become entitied to receive, any consideration Why are these rformance obligations are the unit of account for purposes of applying the revenue recognition and therefore determine when and how revenue is recognized. Is this statement correct? 2) Pe 3) Ellie Company contracts with a customer and provides the customer with an option to purchase additional goods for free or at a discount. Should Elaina Company account for this option? Why or why not? generally not adjusted to reflect the customer's credit risk, meaning the risk that ) The transaction price is the customer will not pay the amount to which the entity is entitled to under the cont statement

Explanation / Answer

1. Because no financial transaction, where one can apply the basic accounting rules, has taken place/accrued. Transfer of goods/service entitles one to receive cash or accrue income In a wholly unperformed contract, non eof the above is satisfied. To record in books of accounts,some money value need to be attached, which is not possible in an unperformed contract. 2. Yes.Revenue is to be recognised,in books of accounts of the contractor, only when the said activity is completed for the customer & the customer stands to benefit out of that performance , as intended ,by both the parties. So, both the stage of completion & money value to be attached for work done upto that stage , are decided by performance obligations 3..Yes. They should be accounted when there is a strong possibility for the customer to receive some material right to acquire future goods or services and that are similar to the original goods or services in the contract ,in line with the terms of the original contract. In such case,the options can be accounted by allocating the transaction price of the original goods or services. 4..Normally transaction price is not in-built with the apprehension that the customer may turn partially or fully bad. Only when the contractor offers discounts as part of the contract,they are reflected in the transaction price---when,the discounted transaction price is recorded as receivable. Possible impairment of credit (risk of credit turning bad)are not reflected in the transaction price.

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