Question

1)

a) tony gale ,a solicitor, accept a legal engagement in March , perform the work in April, and is paid in May, if Gale's law firm prepares monthly financial statements, when should it recognize revenue from his engagement? why?

b) I completing the engagement in question (a). Gale incurs $2000 of expenses in March,$1000 in April and %600 in May .how much expense should be deducted from revenues in the month the revenue is recognized? why?

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4)

Answer 1

a) Tony gale,a solicitor should recognizes the revenue in the monthly financial statements of April.

As per standards,revenue should be recognised when each of the four conditions have been fulfilled-i) Legal arrangement must exist between the parties ii) delivery of good or services have been rendered iii) consideration has been fixed iv) collectability should be reasonably assured.

In the current situation,all of the conditions have been fulfilled in the month of april. Hence revenue should be recognized in the monthly financial statements of April.

b) Dollar 600 should be deducted from revenues in the month of april.

As per expense recognition concept,expense should be recognized in the same period as the revenue to which it relates. Otherwise,expenses would be recognized as they are incurred which might be different from the period of revenue it relates.