1
State three classes of people, other than managers and owners, who are likely to need to use
financial accounting information. Discuss whether you think their requirements are compatible.
(Association of Chartered Certified Accountants)
2
A business produces a standard manufactured product. The stages of the production and
sale of the product may be summarised as follows:
Stage A B C D
Activity Raw material WIP-I WIP-II Finished product
£ £ £ £
Costs to date 100 120 150 170
Net realisable value 80 130 190 300
Stage E F G H
Activity For sale Sale agreed Delivered Paid for
£ £ £ £
Costs to date 170 170 180 180
Net realisable value 300 300 300 300
Required:
(a) What general rule do accountants apply when deciding when to recognise revenue on any particular
transaction?
(b) Apply this rule to the above situation. State and explain the stage at which you think revenue
will be recognised by accountants.
(c) How much would the gross profit on a unit of this product be? Why?
(d) Suggest arguments in favour of delaying the recognition of revenue until Stage H.
(e) Suggest arguments in favour of recognising revenue in appropriate successive amounts at
Stages B, C and D.
(Association of Chartered Certified Accountants)