Apple Inc Revenue Recognition
Revenue is gross amount a company received or billed from service provided or units sold, Revenue is earned regardless money come in or not at that particular time. It is assumed revenue is earned, when it is realizable, and earned. Revenues are derived from company normal operation. The company exist to sell it is core product or services to the market. Gain rise from non operation activities of the entity. An asset sells can be considered a gain if the company originally depreciated the assets to zero, then sell it. Even know the company used the assets to generate revenue, the assets transaction is a gain, because it is not a core business transaction. The primary function of a business is not to sell the assets for a gain. Any amount of gain from non operation of core business is considered to be a gain. Examples are currency gain, Short term investment gain, and extraordinary gain. B.
When a business recognized revenue, it means it has earned the revenue, and it is realizable in that period, which indicated a transaction, or service has occurred. The business did its obligation to bill or accepts money at that period. The business has full expectation it will receive the revenue in the near term depending the billing agreements.
The income statement is affected by revenue recognition, also the balance sheet is affected, and all this individuals: Account receivable, Tax payable, COGS, Cash, Unearned revenue.
The revenue criteria from FASB concept 5 says: revenue to be recognized on the income statement, revenue must be realized, or realizable and earned.
Yes, they do align with FASB standards; Apple recognized revenue when persuasive evidence of transfer ownership arrangement exists.
1. Entity has transferred to the buyer the significant risks and rewards of ownership of the goods;
2. Entity retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold
3. The amount of revenue can be measured reliably;
4. It is probable that the economic benefits associated with the transaction will flow to the entity.
The multiple element contract is referring to the embedded unspecified upgrade right that the company might be obligated to provide. It is difficult to put a monetary value, because the company has to estimate the cost of upgrade, and once they estimate the cost, the company must set deferred revenue by subtracting it from original sales. The new rules allowed the company to estimate as low as possible because the upgrade costs are not that significant to swing the income statement.
Compensation metric could be aligned with revenue growth.
ITunes songs sold online on net basis, and recognized when transaction occurred
Mac-branded accessories are recognized when billed, if it sold online apple waits until customers receive the items, because apple is liable until delivery.
IPod sold to third party reseller in India is recognized when apple billed the third party.
Apple recognized the amount it billed it‘s customers, apple takes inventory risks, therefore it recognized the gross amount it billed, if it sold online from another company, apple only recognized net sales.
50 Mac * 2800 = 140,000
Unit price 2,500
Software + 2 years service =300
Apple will recognize the whole gross sale 140,000 as revenue for 2010. Because apple took the inventory risk, Apple will bill the community college the 140,000, and recognized the same amount as the revenue.
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