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Friday, July 27, 2007

J-GAAP: Revenue Recognition

Japanese GAAP promulgates that revenue should be recognized based on the realization principle. Although the concept of realization is not specifically defined in GAAP, it is interpreted that revenue is realized if the following two conditions are met; (a) a transfer of goods or services and (b) receipts of cash or cash equivalents (including accounts receivable).

Construction contract is accounted for alternatively by the completion method or the percentage-of-completion method. Such treatment is different from IAS 11 (revised 1993), Construction Contracts, which requires the percentage-of-completion method when the outcome of the contract can be reliably estimated.

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