Conditions for Revenue Recognition - SFAC 5 | CFA Level 1 Exam Prep

Conditions for Revenue Recognition

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Question

According to SFAC 5, the condition(s) that must be met for revenue recognition to take place is

Answers

A. the ability to measure the revenue amount.

B. there must be no remaining significant contingent obligation that pertains to the sale.

C. the verbal or written agreement of the sale.

D. the ability to recognized when the revenue actually takes place.

E. the completion of the earnings process and assurance of payment.

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Explanations

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A. B. C. D. E.

The firm must have provided all or virtually all the goods/services for which it is to be paid and it must be possible to measure the total expected cost of providing these goods/services. Also, the seller must reasonably estimate the probability of nonpayment; if this cannot be assured, assurance of payment is not satisfied.

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