Question

Which of the following is an indicator that revenue for a service should be recognized over time?

a. The seller is enhancing an asset that the buyer controls as the service is performed.
b. The seller is providing continuous effort to the buyer.
c. The seller can estimate the percent of work completed.
d. The sales price is fixed and determinable.

Answer 1

Revenue for a service should be recognized over time when the seller is enhancing an asset that the buyer controls as the service is performed, adhering to recognized accounting standards for revenue recognition.

Step-by-step explanation:

Revenue recognition for a service over time is determined based on specific criteria outlined by accounting standards. In this context, an indicator that revenue for a service should be recognized over time is:

• The seller is enhancing an asset that the buyer controls as the service is performed.

This point is a key principle in revenue recognition, according to accounting standards such as IFRS 15 and ASC 606 which dictate when and how revenue should be recognized. It indicates that as a service is provided and the asset is enhanced or created, the buyer simultaneously receives and consumes the benefits from the service. This contrasts with revenue recognition at a point in time, which occurs when control of goods or services is fully transferred to the buyer.