A firm produces a standard manufactured product. The stages of the production and sale of the product may be summarised as follows:

Required:

(a) What general rule do accountants apply when deciding when to recognise revenue on any particular transaction?

(b) Apply this rule to the above situation. State and explain the stage at which you think revenue will be recognised by accountants.

(c) How much would the gross profit on a unit of this product be? Why?

(d) Suggest arguments in favour of delaying the recognition of revenue until stage H.

(e) Suggest arguments in favour of recognising revenue in appropriate successive amounts at stages B, C and D.

Transcribed Image Text:

Stage Activity Costs to date Net realisable value Stage Activity Costs to date Net realisable value A Raw material £ 100 80 E For sale £ 170 300 B WIP-I £ 120 130 F Sale agreed £ 170 300 с WIP-II £ 150 190 G Delivered £ 180 300 D Finished product £ 170 300 H Paid for £ 180 300