Please help me with this I see that someone has asked this q

Please help me with this. I see that someone has asked this question before but their answer doesnt really help.

Two undergraduate accounting learners discussed the timing of revenue recognition for long-term construction contracts in their online course discussion area. The discussion focused on which method was most like the typical revenue recognition method of recognizing revenue at the point of product delivery. William argued that recognizing revenue upon project completion was preferable because it was analogous to recognizing revenue at the point of delivery. Sarah disagreed and supported recognizing revenue over time, stating that it was analogous to accruing revenue as a performance obligation was satisfied. Sarah also pointed out that as an advantage of recognizing revenue over time is that it provides information sooner to users.

Discuss the arguments made by both learners; select which of the two arguments you would support and fully detail why you would choose this argument.

Solution

William believed that the Revenue should be recognised only when it is completed and revenue is realised.

Whereas Sarah believed revenue should be recognised when the performance obligation was accomplished.And therefore should be recognised overtime.

I would suggest that Sarah\'s point of view is more justified. As the long term contract was entered into & the realisation of revenue becomes certain on performance it should be recognised overtime on accrual basis based upon percentage of completion of contract.

This seems to be justified as expenses incurred over the period should be matched with revenue of the period due to Matching concept of Accounting principle.

Recognition of revenue pertaining to a period along with expenses incurred on performance of contract, provides better presentation of Financial Statements and give true and fair view.

Conclusion: Based on the above arguments it is suggested to record revenue overtime based on performance of contract.

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