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Retainer Fe Case

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Retainer Fe Case
1. Both criteria of basis revenue recognition are confirmed:
Entity has substantially performed what is required in order to earn income and the amount of income can be reliably measured. Because of the problem which occurs by reading out the customers meters the company should estimate the revenues for the month December. It has many historical data about the electricity usage of its customers. For example it could relay on the experiences of the last December. Normally there are no high fluctuations in electricity usage. If there are any changes of the circumstances the company could adjust its estimations.

2. Retainer Fee: A law firm received a “retainer” of $10,000 on july 1, 2006, from a client. In return, it agreed to furnish
…show more content…
101 (SAB 101), providing the service is the act of performance. In general, SAB 101 requires substantial performance of the sales arrangement by the seller-- A seller should substantially complete or fulfill the terms specified in the sales arrangement. This is the most conservative approach; however, one might argue that the same principle that applies to franchises may be applicable. If so, one could potentially seek to count the retainer as revenue at which time the first general legal advice request is …show more content…
Performance Qualifier: A seller should substantially complete or fulfill the terms specified in the terms of the sales arrangement (ie. The trip has taken place, ship has sailed).
Consignee (travel agent as middle-man) does not apply because the assignee has assumed the risks and rewards of ownership.

If the passengers were entitled to a refund, this only further supports the reporting of revenue at which time the trip has taken place.

4. Accretion: A nursery owner had one plot of land containing Christmas trees that were four years old on November 1, 2006. The owner had incurred costs of $3 per tree up to that time. A wholesaler offered to buy the trees for $4 each and to pay in addition all costs of cutting and bundling, and transporting them to market. The nursery owner declined this offer, deciding that it would be more profitable to let the trees grow for one more year. Only a trivial amount of additional cost would be involved. The price of Christmas trees varies with their height. Should the nursery owner recognize any revenue from these trees in 2006?

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