D I S C U SS I O N M A T E R I A L S
O b j e c t i v es o f t h e C a se
This case gives students the opportunity to use accounting and auditing literature and professional judgment to research complex accounting issues effectively and efficiently. Specifically, students will be able to:
Understand the application of the guidance in ASC 605-25, as amended by ASU 2009-13, to complex multiple-deliverable arrangements.
Understand the application of the guidance in SAB Topic 13.
A p p l i c a b l e P r of essi on a l P r onou n c e m e n ts ASC 605-25, Revenue Re cogni t ion : Mul t ipl e- E l ement A r r angements (ASC 605-25) (formerly EITF Issue No. 00-21, Revenue Arrangements With Multiple Deliverables (Issue 00-21)), as amended by ASU 2009-13, Revenue Re cogni t ion (Topi c 605) : Mul t ipl e- D e l ive r abl e Revenue A r r angements (ASU 2009-13) (formerly EITF Issue No. 08(Issue 08-1))
SEC Staff Accounting Bulletin Topic 13, Revenue Recognition (SAB Topic 13)
P rof essor N ot e : This case study requires students to recognize an arrangement comprising multiple deliverables. The case study essentially focuses on determining whether the activation card represents a separate arrangement deliverable and, if so, whether this deliverable represents a separate unit of accounting. In other types of arrangements, a company may provide additional deliverables, such as hardware (cellular phone), minutes, and additional services (e.g., Web browsing, mail). Each multipledeliverable arrangement should be analyzed to determine the number of deliverables and units of accounting before determining the appropriate revenue recognition model. Given the multitude of possible combinations of alternatives, this case study focuses on the activation card to simplify the analysis that is required in analyzing a multiple-deliverable arrangement.
D isc uss ion
Refer to current, relevant accounting guidance to determine and support the appropriate method for recognizing revenue for the Power Starterpack.
To determine the appropriate revenue recognition model, students must first determine whether the Power Starterpack comprises multiple deliverables or is a single deliverable. The prepaid voucher will probably be readily identifiable as a deliverable and a separate unit of accounting because it is sold separately, but the activation card will probably not be. Accordingly, the discussion that follows focuses on the need to determine whether the a c t i v a t ion c a r d is a separate unit of accounting.
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Case 09-1: Velocity Cellular
A c co u n t i n g A l t e r n a t i v es
A l t e r n a t i ve 1
The a c t iva t ion c a rd is not a sepa r a t e de l ive r abl e and not a sepa r a t e uni t of a c count ing in a c cordanc e wi th AS C 605-25.
Proponents of A l t e rna t ive 1 believe that subscribers do not ascribe value to the activation card separately from the prepaid voucher because they chose to purchase the Power Starterpack that includes both the prepaid minutes and the activation card. A l t e rna t i ve 1 proponents contend that subscribers have the option to purchase the activation card on a standalone basis but elected to purchase the Power Starterpack. Regarding review of the arrangement to determine separate deliverables, ASC 605-2525-4 states: A vendor shall evaluate all deliverables in an arrangement to determine whether they represent separate units of accounting. That evaluation shall be performed at the inception of the arrangement and as each item in the arrangement is delivered. Although there is no authoritative guidance defining
A l t e rna t ive 1 believe that the perspective of the customer should be considered. The SEC staff has
the deliverables. However, no clear consensus or group view delineates the criteria that should be used to determine separate elements or...