ï»¿Apple case: Concept questions
Question a: In your own words, define â€œrevenuesâ€. Explain how revenues are different from â€œgainsâ€.
RevenueÂ is the amount earned by a company by its main activities such as selling merchandise or providing services. revenue covers money that comes into the business but expenses must be removed before the profit is recognized
The primary difference between revenue and gains is that revenue is money generated through primary business activities, whereas gains are achieved through peripheral business activities, such as selling an old machine. A gain is the amount received that is in excess of the asset'sÂ carrying amountÂ (book ...view middle of the document...
The revenue recognition criteria that are outline in the FASBâ€™s statement concept No. 5 as mentioned in the paragraph 63 of FASBâ€™s statement are-
1. Definitionsâ€”The item meets the definition of an element of financial statements.
2. Measurabilityâ€”It has a relevant attribute measurable with sufficient reliability.
3. Relevanceâ€”The information about it is capable of making a difference in user decisions.
4. Reliabilityâ€”The information is representationally faithful, verifiable, and neutral.
Question c: Refer to the revenue recognition discussion in note 1. In general, when does Apple recognize revenue? Explain Appleâ€™s four revenue recognition criteria. Do they appear to be aligned with the revenue recognition criteria you described in part b, above?
Apple recognizes revenue when
1. There is persuasive evidence of an arrangement exists
2. The company completed its productâ€™s delivery to the destination
3. The sales price is fixed or determinable,
4. Collection of money is probable, and
Apple generally recognizes revenue from the sales of the companyâ€™s hardware products and software products, and third partyâ€™s digital content sold on iTunes store as standalone sales of software, sales of software upgrade, and sales of software with the hardware. Appleâ€™s product is considered delivered to the customer once it has been shipped and title and risk of loss have been transferred. For online sales, the company defers it revenue until the customer receives the product as Apple legally retains a portion of the risk of loss on these sales during shipment. Apple fixed its own products as well as determine the price of the tangible software products that include multi-element arrangement by using hierarchy. The company records deferred revenue when it receives...