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Basic Question 1 of 12

In order to recognize revenue during the production phase of a product, the expected future costs necessary to complete the product must be reliably estimated. True or False?

User Contributed Comments 7

User Comment
teddajr Future revenue recognition prior to completion can be achieved with availability of reliable estimates of expected future costs.
kutta2102 I'm slightly confused. How can we recognize revenue when the product is in the "production" stage? Revenue cannot be recognized until the product is actually delivered to the customer.
ppjar yes you can still recognize revenue even if the project is not complete: think about a huge project that takes years to complete. You would not recognize the revenue after all these years...
Drzewes percentage of completion method, installment sales method...
johntan1979 What about the cost recovery method? Cost cannot be reasonably determined. So the statement above is false, since under this method, sales are recognized when cash is received, but no gross profit is recognized until all of the costs of goods sold are collected. That is, it recognizes profit only when cash collections exceed the total cost of the product sold.
schweitzdm johntan1979 has a point. This question is confusing.
kingirm Reliable or reasonable?
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Learning Outcome Statements

describe general principles of expense recognition, specific expense recognition applications, implications of expense recognition choices for financial analysis and contrast costs that are capitalized versus those that are expensed in the period in which they are incurred

CFA® 2024 Level I Curriculum, Volume 2, Module 2.