Explain How a Company Records Revenue and Expenses for a Long-Term

question 8

Essay

Explain how a company records revenue and expenses for a long-term contract under IFRS. Include an explanation of how changes in estimates are accounted for under this method.

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Definitions:

Unsystematic Risk

The segment of risk that is unique to a specific company or industry, also known as diversifiable risk, which can be mitigated through diversification.

Diversification

Spreading a portfolio over many investments to avoid excessive exposure to any one source of risk.

Portfolio

A collection of financial investments like stocks, bonds, commodities, cash, and cash equivalents, including mutual funds and ETFs.

Unique Risk

Nonmarket or firm-specific risk factors that can be eliminated by diversification. Also called firm-specific risk, nonsystematic risk, or diversifiable risk.