ACCT 30101 Carlos Briones Revenue Recognition Case Amanda Eng Alipasha Ziaee
1. Revenue Recognition for MultipleElement Arrangements The Case of Velocity Cellular
a) According the ASC 60525255 there are two criteria that must be met in order to be considered a separate deliverable and a separate unit of accounting: i. The delivered item or items have value to the customer on a standalone basis. The item or items have value on a standalone basis if they are sold separately by any vendor or the customer could resell the delivered item(s) on a standalone basis. In the context of a customers ability to resell the delivered item(s), this criterion does not require the existence of an observable market for the deliverable(s).
If the arrangement includes a general right of return relative to the delivered item, delivery or performance of the undelivered item or items is considered probable and substantially in the control of the vendor.
Criterion i. is met because activation cards have value to the customers on a standalone basis. Activation cards are sold by Velocity Cellular, as well as independent wireless retailers as a standalone product.
Criterion ii. is met because there is no general rights of return relative to the delivered item contained in the prepaid plan, this makes criterion b. not applicable.
The activation card is a separate deliverable and a separate unit of accounting in accordance with ASC 60525.
b) The proper allocation of revenue between the activation card and prepaid voucher can be found in ASC 60525252 which states: The principles applicable to this Subtopic are as follows: a. Revenue arrangements with multiple deliverables shall be divided into separate units of accounting if the deliverables in the arrangement meet the criteria in paragraph
b. Arrangement consideration shall be allocated among the separate units of accounting based on their relative selling prices (or as otherwise provided in paragraph
). The amount
allocated to the delivered unit of accounting is limited as discussed in paragraph
c. Applicable revenue recognition criteria shall be considered separately for separate units of accounting.
Here’s how we recognize revenue of the Power Starterpack: Step 1
We find the total price of all the deliverables based on their individual pricing. $50 + $170 = $220 Prepaid Voucher + Activation Card = Total Value of Power Starterpack based on Individual Pricing
Relative pricing is found by dividing the standalone price by the total value of the package.
Prepaid Voucher’s relative pricing.
Activation Card’s relative pricing.
We then multiply the Power Starterpack’s price with prepaid voucher's and activation card's relative pricing.
= $45.45 Prepaid Voucher
= $154.55Activation Card
These are the prices we recognize as revenue for the prepaid voucher and activation card within the Power Starterpack.
Journal entries at time of sale are as follows:
c) Based on the ASC 60510S99 the recognition of the revenue is circumstantial for each case, at the point of sales depending on their arrangement. The activation fee is simply considered additional arrangement consideration to be allocated.
Nonrefundable upfront fees ...
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