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Hey Mike:
There is this paragraph in the textbook regarding the DP on Revenue recognition. It is as follows:
The DP proposes that revenue should be recognised on the basis of increases in an entity’s net position in a contract w the customer. Revenue would be recognised when a contract asset increases or a contract liability decreases.
I dont get “net position in a contract”. What does that mean? Also, how can a contract asset INCREASE, or a liability DDECREASE? It sounds pretty weird.
Thanks!
SK
Hi
Not sure whether I could think of any examples, but the basic principle is defendable. If, as a result of “something”, my potential benefits under a contract are improved, then that’s the time I should recognise the revenue represented by the value of these improved benefits. And the same operates from a reduction in liability perspective.
But don’t ask me to give you an example of this “something” which has caused a change in the potential outcome of a contract
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