The text discussion of RRA is primarily in terms of the relevance and reliability of the asset valuation of oil and gas reserves. RRA can also be evaluated in terms of the criteria for revenue recognition. Under IAS 18, revenue from the sale of goods is recognized when the significant risks and rewards of ownership have been transferred to the buyer, the seller loses control over the items, the revenue and related costs can be measured reliably, and collection is reasonably assured. Required a. At what point in their operating cycle do most industrial and retail firms regard revenue as having been earned (i.e., realized)? Use the IAS 18 revenue recognition criteria above to explain why. b. Suppose that X Ltd. is an oil and gas producer. X Ltd. uses RRA on its books and prepares its financial statements on this basis. When (i. e., at what point in the operating cycle) is revenue recognized under RRA? Does this point meet the criteria for revenue recognition for sale of goods as given in IAS 18? Explain why or why not.
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