Comprehensive objective question on Revenue Recognition (ASC 606 – US GAAP) , included MCQs, case-based questions, fill in the blanks, match the following, odd one out, and assertion–reason .
First Read this para..then solve questions ⁉️
Here’s a breakdown of revenue recognition for different industries and businesses as per US GAAP (ASC 606):
Industry-Specific Revenue Recognition
- Software Industry: Revenue recognized when control transfers to customer, often at delivery or upon meeting specific performance obligations
- Construction Industry: Revenue recognized over time using the percentage-of-completion method or at completion
- Telecom Industry: Revenue recognized as services are provided (e.g., monthly subscription fees)
- Retail Industry: Revenue recognized at point of sale, when control transfers to customer
- Subscription Services: Revenue recognized ratably over the subscription period
Key Principles (ASC 606)
- Identify contract with customer
- Identify performance obligations
- Determine transaction price
- Allocate transaction price to performance obligations
- Recognize revenue when performance obligations are satisfied
📘 MCQs (Multiple Choice Questions)
1. Under ASC 606, revenue is recognized when: A. Cash is received
B. Invoice is issued
C. Control of goods/services transfers
D. Contract is signed
✅ Answer:
2. Which industry typically recognizes revenue over time?
A. Retail
B. Construction
C. Wholesale
D. Trading
✅ Answer:
3. Subscription-based revenue is recognized:
A. At the beginning
B. At the end
C. Ratable over time
D. Only when cash is received
✅ Answer:
4. The first step in ASC 606 is:
A. Allocate transaction price
B. Identify contract
C. Recognize revenue
D. Determine price
✅ Answer:
5. Telecom companies recognize revenue:
A. At installation
B. At contract signing
C. As services are provided
D. At year-end
✅ Answer:
6. Retail businesses recognize revenue:
A. Over time
B. At production stage
C. At point of sale
D. After payment
✅ Answer:
7. Transaction price refers to:
A. Market price
B. Cost incurred
C. Amount expected to receive
D. Invoice amount only
✅ Answer:
8. Performance obligation means:
A. Legal liability
B. Promise to transfer goods/services
C. Contract approval
D. Payment term
✅ Answer:
📊 Case-Based MCQs
Case 1:
A software company delivers a license and provides support services for 1 year.
9. How should revenue be recognized?
A. Entirely at delivery
B. Entirely after 1 year
C. Split between license & support
D. Only when cash received
✅ Answer:
Case 2:
A construction company builds a bridge over 3 years.
10. Revenue should be recognized:
A. Only at completion
B. Over time
C. At contract signing
D. After payment
✅ Answer:
Case 3:
A telecom company charges ₹1,000 monthly subscription.
11. Revenue is recognized:
A. ₹12,000 upfront
B. ₹1,000 monthly
C. At year-end
D. After full payment
✅ Answer:
Case 4:
A retail store sells goods and receives cash instantly.
12. Revenue recognition point:
A. Production
B. Delivery
C. Point of sale
D. After audit
✅ Answer:
✏️ Fill in the Blanks
13. Revenue is recognized when ______ transfers to the customer.
✅ Answer:
14. ASC 606 follows a ______ step model.
✅ Answer:
15. Subscription revenue is recognized ______ over time.
✅ Answer:
16. Construction companies often use ______ method.
✅ Answer:
17. Performance obligation is a ______ to transfer goods/services.
✅ Answer:
🔗 Match the Following
| Column A | Column B |
|---|---|
| 18. Software Industry | A. Point of sale |
| 19. Construction | B. Over time |
| 20. Retail | C. Delivery/control |
| 21. Subscription | D. Ratable |
✅ Answers:
18–
19–
20–
21–
🚫 Odd Man Out
22. Identify the odd one:
A. Identify contract
B. Allocate price
C. Record expense
D. Recognize revenue
✅ Answer:
23. Identify the odd one:
A. Retail
B. Telecom
C. Agriculture
D. Software
✅ Answer:
⚖️ Assertion–Reason Questions
24. Assertion (A): Revenue is recognized when control transfers.
Reason (R): Ownership always equals control.
A. Both true, R explains A
B. Both true, R not explanation
C. A true, R false
D. A false, R true
✅ Answer:
25. Assertion (A): Subscription revenue is recognized over time.
Reason (R): Services are delivered continuously.
A. Both true, R explains A
B. Both true, R not explanation
C. A true, R false
D. Both false
✅ Answer:
26. Assertion (A): Construction revenue can be recognized over time.
Reason (R): Work is performed gradually.
A. Both true, R explains A
B. Both true, R not explanation
C. A false, R true
D. Both false
✅ Answer:
🎯 Challenging / Tricky MCQs
27. If multiple performance obligations exist, transaction price is:
A. Ignored
B. Allocated proportionately
C. Recognized immediately
D. Deferred fully
✅ Answer:
28. If control does not transfer, revenue:
A. Must be recognized
B. Cannot be recognized
C. Partially recognized
D. Deferred indefinitely
✅ Answer:
29. Which step comes after identifying performance obligations?
A. Recognize revenue
B. Determine transaction price
C. Identify contract
D. Allocate price
✅ Answer:
30. Revenue recognition under ASC 606 is based on:
A. Cash flow
B. Legal form
C. Transfer of control
D. Invoice date
✅ Answer