Final answer:
Revenue recognition at the completion of production for precious metals and farm products can occur if certain criteria are met, including an established market with known prices, low additional costs for completion and selling, and interchangeable product units.
Step-by-step explanation:
The criteria for recognition of revenue at the completion of production of precious metals and farm products generally follow the rules of accounting which state that revenue should be recognized when it is realized or realizable and when it is earned. In the case of precious metals and proprietary farm products, recognition of revenue at the point of production completion may be appropriate, especially if four specified criteria are met. These criteria are:
- An established market with quoted prices ensures that the products can be sold at known values.
- Low additional costs of completion and selling mean that what remains to be done to sell the product does not require significant expenses.
- Units are interchangeable, which means the products are essentially homogeneous and one unit is substantially the same as another.
- All of these conditions should ideally be met for revenue to be recognized at production completion.
These criteria help ensure that the recognition of revenue is a fair reflection of economic benefits that will flow to the company. When applied to markets such as precious metals or farming products, these conditions lean towards an environment resembling perfect competition, where the commodity nature of the products makes their values and costs more predictable and standard.