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Hi,
How do I account for sharing of profits agreement? Lets say the profits estimated for the year of 2010 to be $100,000. It is billed at every quarter on a straight line basis starting from end of 2Q2010(June). The profits are adjusted at the end of last quarter(1Q2011) when actual sales can be determined eg. $125,000 overall – means additional 25,000 recognised in last quarter.
What is the correct way of recognizing revenue given $75k is billed in 2010 and $50k billed in 2011.
But there will be a brought forward adjustment from the previous year 2009 to add to the 75,000 billed in 2010
And I wonder why there was not an estimate made at the year end of 25,000 with only the adjustment going through in 2011 quarter 1
Yes. There will be a b/f adjustment to add with 75k. Is it correct to recognise share of profit at $100k given that it is estimated for the year of 2010 or with the b/f adjustment to recognise with the $75k?
Actual sales can only be determined after y/e, hence the adjustment can only be made after y/e.
Agreed, and in practice I can only assume that accruals are made that have the effect of bringing forward an estimated accrual for quarter 4, settling quarter 4 from last year in quarter 1 (so only a small adjustment now in the account), settling quarter 1 in quarter 2 (so now only one quarter plus the small adjustment in the account) Same for quarters 2 and 3 settled in quarter 3 and 4
But now there are only three quarters plus the small adjustment in the account.
Now accrue quarter 4 (that will be settled in quarter 1 next year) and so on
Better?
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