Issues With Revenue Recognition within the Software Industry The Isoft Example Financial Controller-SoftWarehouse Ltd This report has been prepared for the Board of Directors of SoftWarehouse Ltd for elucidation about the contentious issues that have given rise to the publication of the article concerning Isoft’s issues with revenue recognition. Finally, it will also assess whether or not these issues are likely to affect SoftWarehouse Ltd. TABLE OF CONTENTS Executive Summary: 3 Introduction:
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1. Is Eye Vision’s arrangement with Holland Hospital within the scope of ASC 985-605, Software: Revenue Recognition? In this case, the main content of the Eye Vision’s arrangement with Holland Hospital include embedded software medical equipment and an initial option to purchase a two-year separately priced maintenance agreement. In this case, because “Eye Vision has never sold, nor does it offer to sell, the Clear View Laser without the embedded software because the software is necessary to perform
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Codifications and quotations used in following scenarios 1) Service revenue should be recognized on a straight-line basis, unless evidence suggests that the revenue is earned or obligations are fulfilled in a different pattern, over the contractual term of the arrangement or the expected period during which those specified services will be performed, whichever is longer. (SAB Topic 13A3, Interpretive Response to ques.6) 2) Revenue should be deferred until the specifications have been achieved or
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CHAPTER 18 Revenue Recognition ASSIGNMENT CLASSIFICATION TABLE (BY TOPIC) Topics Questions Brief Exercises Exercises Problems Concepts for Analysis *1. Realization and recognition; sales transactions; high rates of return. 1, 2, 3, 4, 5, 6, 22 1 1, 2, 3 1 1, 2, 3, 4, 5, 7, 8, 9 *2. Long-term contracts. 7, 8, 9, 10, 11, 12, 22 2, 3, 4, 5, 6 4, 5, 6, 7, 8, 9, 10 1, 2, 3, 4, 5, 6, 7, 14, 15, 16, 17 1, 2, 3, 6 *3. Installment sales. 13, 14, 15, 16, 17,
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Throughout the answers, we will refer to SAB 101 and IAS NO.18 as mentioned below: SAB 101 – Revenue Recognition Guidelines: Rule 1: Persuasive evidence of an order arrangement exists; Rule 2: Delivery of the ordered goods has occurred or services have been rendered; Rule 3: The seller’s price to the buyer is fixed or determinable; Rule 4: Collectability of the sale proceeds is reasonably assured; International Accounting Standards NO.18: Rule a: The entity has transferred to the buyer the
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all of their products following the same revenue and expense recognition rules (deferral of revenue and accrual recognition of expenses). An explanation of specific recognition rules follows. * ASC 605-10-05-1 “The Revenue Recognition Topic provides guidance for transaction-specific revenue recognition and certain matters related to revenue-generating activities that are not addressed specifically in other topics.” * ASC 605-28-25 “The Recognition Section provides guidance on the required
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of the company, Daniel Fischer undertakes a revenue recognition review for each of the 3 divisions as SEC has issued SAB 101 guidelines. The effects of applying this guideline would be reported as a cumulative effect adjustment resulting from a change in accounting principle. As a test, Fisher has selected from each of the three divisions a limited number of representative sales transactions to review and the main question is- if all revenue recognition criteria is met other than the issues raised
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CHAPTER 07 REVIEW 1. One of the most difficult issues facing accountants concerns the recognition of revenue by a business organization. Although general rules and guidelines exist, the significant variety of marketing methods for products and services make it difficult to apply the rules consistently in all situations. Chapter 7 is devoted to a discussion and illustration of revenue transactions that result from the sale of products and the rendering of services. Throughout the discussion
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| |= (Sales revenue - Recognized revenue + Revenue deferred during the year) + Change in accounts receivables = 76,567 + 1807 = 78,374| | | |Cash Dr. 44253 | |Deferred / unearned revenue Cr. 44253
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Definition of Revenue (FASB Concepts Statement No. 6): Inflows or other enhancements of assets of an entity or settlements of its liabilities (or a combination of both) from delivery or producing goods, rendering services, or other activities that constitute the entity’s ongoing major or central operations. Separate definition for Gains Guidelines for Revenue Recognition The revenue recognition principle (FASB Concept Stmt. No. 5) provides that companies should recognize revenue 1) when
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