One Approach to Revenue Recognition Proposed for Self-Generating and Regenerating

question 26

Multiple Choice

One approach to revenue recognition proposed for self-generating and regenerating assets is to recognise volume changes as revenue or expense but to treat price changes as an adjustment to equity through a reserve.AASB 141 requires that:

• A) the combined gain or loss arising be included in profit or loss for the period in which it arises.
• B) There is no precedent in accounting standards for the recognition of changes in market values as adjustments to equity.
• C) The total increase in value is the production for the period and it should be available for distribution to owners.
• D) The revenue for the period would not reflect the performance of management.

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Definitions:

Accounting Cycle

A series of steps taken in order to prepare financial statements, starting from transactions and ending with closing the books.

Post-closing Trial Balance

A financial statement that lists all accounts and their balances after closing entries have been made, usually the final step in the accounting cycle.

Reversing Entries

Journal entries made at the beginning of an accounting period to reverse or cancel out adjusting entries from the end of the previous period.

Adjusting Entries

These are journal entries made in an accounting period to allocate income and expenditures to the period in which they actually occurred.