Revenue Recognition & Measurements Harvard Case Solution & Analysis

Accounting Issue

The existing issues relating of Accounting are countless which some of are following below with the status of the issue and further more implementation on the issues:

  1. Measuring the Financial Assets and Financial Liabilities of a Financing Entity.

Main Issues:

Reporting Entity holds a scheming Financial interest in a variable Interest entity (VIE), that entity is indomitable to be the primary financial recipient of the VIE and is required to consolidate the VIE. Characteristics (a) the power to direct the activities of the VIE that most significantly to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE (the losses/ benefits criterion).


Span has been set on three broad Views in which taking into consideration the fact and figures connecting to the financial Instruments.

  • View A: There is no scope-out for financial Assets that are legally held by a Company, even if those assets originated from the parents.
  • View B: It is a narrower scope out only for financial assets that would have failed the conditions for sale.
  • View C: Scope-out as per company with financial assets that are originated from the parents so it is a matter of consideration.


Other issues are several which having the equivalent streams which are given in the references bibliography of this report and Relevant Component are related to the 2nd issue of financial instruments.


Chem Inc. can shipment to the MCA for the reason that of the agreements to the organization by the end of the year, but as far as the revenue reorganization concerned the risks and rewards of the revenue that are associated with MCA till in the year 2010. As per Internationally Accounting Standard “IAS 18” states that revenue is recognized when following criteria falls on the Contracts and leases treatments regarding to IAS 37 also:

v  The gross inflow of economic benefits (cash, receivables, other assets) arising from the ordinary operating activities of an entity (such as sales of goods, sales of services, interest, royalties, and dividends). [IAS 18.7] (18, 2014)

v  Revenue should be measured at the fair value of the consideration received or receivable. [IAS 18.9] (18, 2014)

v  Accounting for arrangements between an enterprise and an investor should reflect the substance of the arrangement. All aspects of the arrangement should be evaluated to determine its substance, with weight given to those aspects and implications that have an economic effect. (37, 2014)

v  Obligations of an arrangement, including any guarantees provided and obligations incurred upon early termination, should be accounted for under Provisions, Contingent Liabilities and Contingent Assets or Financial Instruments: Recognition and Measurement, depending on the terms (37, 2014)

v  So therefore Sale of Chem Inc. should not recognize the sale, but the agreement as carried as obligation towards the MCA.

v  Revenue should be acknowledged in the year 2010 as per the above point given in these circumstances.

v  Along with the circumstances of the revenue recognize also examine with the obligation of the revenue.

Problems before Deciding the Decision:

  • The company should have a sound financial position in the Sales.
  • Comfort the liquidity position of the company, also verify the gearing analyze.
  • The company should assure all legal procedure of the agreement of sales regarding the debt of the company.
  • Follow all the business rules which are in norm of the business.
  • Business Environments with economic conditions are good.


Date Particular P/R Debit Credit
15/Dec/09 Bond Receivable   $1000,000  
         Financial Liability     $1000,000
  (To Record the Substance over form transaction)      
31/March/10 Financial Liability   $1000,000  
         Sales     $1000,000
  (To Record the Substance over form changes)      


Preparing the journal entries as per the substance over form and preparing assumptions are as follows:

  • Assume as this transaction takes place as substance over form and record as bond receivables interest in the transaction.
  • Record as financial liability also because of the sale does not take place at the time of the agreement.

Assumed that the risk and reward are transferring at year 2010 in the month of march........................................

This is just a sample partial case solution. Please place the order on the website to order your own originally done case solution.

Share This


Save Up To




Register now and save up to 30%.