A firm produces a standard product. The stages of production and sale of the product are as follows:

Required:

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

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

(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 at appropriate successive amounts at stages B, C and D.

Transcribed Image Text:

Stage Activity Costs to date NRV B C Raw material WIP-1 WIP-2 Finished goods £100 £120 £150 £170 A NRV = Net realisable value £80 £130 £190 D £300 E G For sale Sale agreed Delivered £170 £170 £180 F £300 £300 £300 H Paid for £180 £300