Question

Microsoft historically followed the practice of recognizing 25% of revenue from its Windows software over three or four years as it promises future upgrades and add- ons. With the launch of Vista in 2008, it changed the policy to record most of the revenue in the period in which the software was sold. In the third quarter for fiscal year 2008, Microsoft reported an increase in earnings of 65%. The increase came from sales of the new Vista program and also from the acceleration in revenue recognition.

Required:

1) Critically evaluate the revenue recognition policy adopted by Microsoft in accordance with AASB15 Revenue from Contracts with Customers. (5 marks)

2) Explain the decision of management to change the revenue recognition policy in terms of the debt hypothesis of Positive Accounting Theory. (5 marks)

Answer 1

Answer : : 1) the Microsoft has changed the policy that is the profit is recognised only in the year in which software was sold

it is appropriate method of accounting treatment as per auditing and assurance standards board

that revenue to be recognised only when they are realise and even their exits no uncertainty

but provision to be made to all known losses

2) debt hypothesis of positive accounting theory is based on large amount of logical research

it shifts reported earnings of future period to current one

thank you hope this helps you