The citations provided herein are not intended to present the complete population of citations where a particular criterion is relevant. This fact is provided as an assumption to facilitate an analysis of revenue recognition in this fact pattern. Amortized Cost — Amortized Cost is where the sum of the initial investment minus the cash collected then minus the write-downs plus yield accreted to date. Reduce the amount of time and effort required to solve an accounting research issue 2. Concepts Statement 5, paragraph 84 d. If Company E can reasonably and reliably estimate the amount of warranty obligations, it should recognize revenue upon delivery of the equipment, with an appropriate liability for probable warranty obligations. Satisfaction of these requirements may vary from product-to-product, location-to-location, customer-to-customer, and vendor-to-vendor.
Contents in every subject are then subdivided into subtopics followed by sections and lastly paragraphs. See also Concepts Statement 5, paragraph 84 a. The costs incurred to activate the telecommunications service are nominal. Question: May Company M recognize in earnings the revenue for the membership fees and accrue the costs to provide membership services at the outset of the arrangement? This paper argues that English use in Nigeria needs to undergo some stages of development and description before a confident statement can be made as to whether a Nigerian English variety comparable to the British or American Standard English exists. Because there is no separable deliverable or earnings event, the staff would generally object to that approach, except where it is provided for in the authoritative literature e.
This list is not meant to be a checklist of all characteristics of a consignment or financing arrangement, and other characteristics may exist. It will walk the reader through a select few topics focusing on how the codification literature addresses each topic. If we experience higher than expected cancellations of service by members whose grandfathered pricing is expiring, or if these members elect the lower priced plan in greater numbers than we expect, our average monthly revenue per paying membership may not increase as much as we expect. Interpretive Response: This contract includes a customer acceptance clause that is based, in part, on a customer specific criterion, and Company E cannot demonstrate that the equipment shipped meets that criterion before shipment. Moreover, revenue should not be recognized in earnings by assessing the probability that significant, but unfulfilled, terms of a contract will be fulfilled at some point in the future. This Subtopic requires that the amount of future returns must be reasonably estimable in order for revenue to be recognized prior to the expiration of return rights.
Concepts Statement 5, paragraph 83 b. This may be because the equipment does not have value to the customer on a standalone basis, there is no objective and reliable evidence of fair value for the installation or there is a general right of return when the installation is not considered probable and in control of the vendor. Further, the staff believes that the earnings process is completed by performing under the terms of the arrangements, not simply by originating a revenue-generating arrangement. We believe that providing detailed information about the number of memberships per plan would result in significant competitive harm. The staff believes management and auditors are uniquely positioned to evaluate the facts and arrive at a reasoned conclusion. Contingent rental income Facts: Company A owns and leases retail space to retailers. Question: Over what period should Company A amortize these costs? These contractual provisions raise questions as to whether the sales price is fixed or determinable.
We derive revenues from monthly membership fees which grant our members unlimited viewing of all of our content, both produced and licensed. I will let you know what the teacher think. Company A requires customers to prepay for all the services for the term specified in the arrangement. Words: 836 - Pages: 4. There are six topics: 1. That is, its revenue is not yet realized or realizable.
The link to the Master Glossary is the last entry in the far left column. While the incurrence of nominal up-front costs helps make it clear that there is not a separate earnings event in the telecommunications example above, incurrence of substantive costs, such as in the web hosting example above, does not necessarily indicate that there is a separate earnings event. Accounting Standards is designed to assist firms in establishing a set of consistent and practical criteria by which to recognize revenue. Formal customer sign-off is not always necessary to recognize revenue provided that the seller objectively demonstrates that the criteria specified in the acceptance provisions are satisfied. Customer acceptance is indicated by either a formal sign-off by the customer or by the passage of 90 days without a claim under the acceptance provisions. The Codification eliminates obsolete information and presents all of the material in the same format and structure. The fees may ostensibly be received for conveyance of a license or other intangible right or for delivery of particular products or services.
Changes in revenue should not be evaluated solely in terms of volume and price changes, but should also include an analysis of the reasons and factors contributing to the increase or decrease. Although the Task Force expressed mixed views at the meeting, it observed that the comment letter did not provide new information that the Task Force did not previously consider during the development of the guidance. The staff believes deferred costs being amortized on a basis consistent with the deferred revenue should be similarly adjusted. Take car sales, for example. Also, increasing service revenue that has a higher profit margin than product sales.
Customer Beta places an order for the product, and Company A delivers the product prior to the end of its current fiscal quarter. If sales transactions have multiple units of accounting, such as a product and service, the accounting policy should clearly state the accounting policy for each unit of accounting as well as how units of accounting are determined and valued. Specifically, the comment-letter feedback cautioned that classifying these cash inflows as investing activities could cause the statement of cash flows to be less relevant than it would be if the entity were to classify these cash inflows as operating activities. Claims processing and billing services Facts: Company M performs claims processing and medical billing services for healthcare providers. Definitions can also be found in the Glossary link under each specific topic.