Reference no: EM131119192

Canadian National Railway Company (CN) spans Canada and mid-America and provides freight transport services from the Atlantic Ocean to the Pacific Ocean and to the Gulf of Mexico. It is currently the largest private rail system in Canada and was privatized by the Canadian government when it was considered one of the worst rail transport companies in North America. CN has been a success story since its privatization and is now considered one of the strongest and most efficient rail freight transport companies. Its success is partly due to a fundamental change in the way it offers freight services to customers. CN runs what the firm refers to as a scheduled railroad. Similar to rail passenger service, as much as possible CN maintains a fixed operating schedule and a fixed freight-car fleet movement across the continent. Thus, customers know what shipment options are available to them and know with a high degree of accuracy when shipments will arrive at designated locations.
Typically, a customer contracts a fixed fee with CN to ship its freight from the point of origination (for example, the Port of Halifax) to the point of destination (for example, the Port of Vancouver). CN provides the entire transport (that is, CN does not contract out a portion of the shipment to other rail transport companies), and the length of time taken to deliver the freight depends on the distance and the type of service (fast delivery versus normal delivery, for example) purchased by the customer. In a recent annual report, CN succinctly states its policy on recognizing revenue: "Freight revenues are recognized on services performed by the Company, based on the percentage of complete service method. Costs associated with movements are recognized as the service is performed."

Required

Discuss the appropriateness of the revenue recognition techniques employed by CN for recognizing freight revenues.