Roman Systems Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Roman Systems Case Solution

This would result in misleading revenues about when exactly the revenue has been incurred. According to IFRS standards, accrual basis should be used for recording the company’s revenue and expenses i.e. whenever the revenue and expenses have incurred, these should be recorded in the company’s financial statements, no matter when the receipts or payments actually occur in cash. RSI should also alter the recorded revenue according to accrual accounting, no matter when the customer sign off the services rendered.

Moreover, the revenue recognition reporting standards must be followed by RSI in recording the revenues coming from the ABM business. The contract shows that the 40% of the transaction fee will be given to RSI and similarly RSI is not responsible for all the expenses related to ABM transaction. So, the company should not report the full revenue and expense amount through ABM sake, rather the portion for the RSI revenue and expenses must be included as a separate line item in the revenue and expense portions of the company’s income statement.

In addition, the company has recorded the issuance of debentures as long term debt, however these debentures are convertible at a rate $5 of each debenture for one common share. Upon conversion, the dentures would not be recorded as a long term debt in the Statement of Financial Position. However, according to IFRS, the convertible debt should be recorded as the equity on the date of the issuance of the shares, which can be calculated by subtracting the fair value of liability component on the date of shares issuance from the fair value of the convertible debt portion on the balance sheet of RSI.

Lastly, the payment of $450,000 have been received by the company form its largest customer over an accounts receivable of $835,000 over 120 day category. The customer believes that some work by RSI is still remaining as a result of which payments are made fully. RSI has recorded the whole amount as revenue, however, the services are not fully rendered. The company should follow the matching principle in recording the revues from the customers, as it would have a bad effect on the receivables of customers. The matching principle states that the revenue and expenses should be recorded in the same period, in which they occur. The company has not yet provided complete services to its customer and recorded it as revenues and the accounts receivables. So, RSI should adjust the amount of revenue with the actual amount of services rendered and it should reduce the accounts receivables in accordance with the matching principle, before going public..............................

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