Income Statement and Milestone

Powerful Essays
When should the milestone payments received to date by SolvGen be recognized as revenue?
A: FASB codification (605-28) milestone method
SolvGen Inc. is gonging to use the milestone method to recognize the revenue. The milestone method is a recently issued method of recognizing revenue for research and development arrangements under which consideration to be received by the vendor is contingent upon the achievement of certain milestones(FASB codification (605-28) milestone method).
Under the commonly applied milestone method, a vendor recognizes revenue in the period during which the milestone is achieved. Each milestone is essentially treated as a separate contract for accounting purposes.
The milestone method applies only to (a) research and development deliverables or (b) units of accounting under which the vendor satisfies its performance obligations over a period of time and some or all of the consideration is contingent upon uncertain future events or circumstances,
The milestone method is the only acceptable method for recognizing deliverable consideration or unit of accounting consideration contingent upon achievement of a substantive milestone as revenue in its entirety in the period in which the milestone is achieved。
In order to recognize revenue related to a milestone, the milestone must be considered substantive in its entirety (i.e., milestone consideration may not be bifurcated into substantive and non-substantive components).
Requires that (1) determining whether a milestone is substantive should be made only at the inception of the arrangement, and (2) to be substantive, consideration earned from the achievement of a milestone should:
Be commensurate with the vendor 's performance to achieve the milestone or with the enhancement of the value of the delivered items.
Relate only to past performance (no portion of the milestone may relate to remaining deliverables and no portion may be refundable or adjusted through penalty based

You May Also Find These Documents Helpful

  • Powerful Essays

    Case 04-7 Lighthouse

    • 3560 Words
    • 15 Pages

    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. Other Topics may contain transaction-specific revenue recognition guidance related to transactions in those Topics. This Topic includes the following Subtopics:…

    • 3560 Words
    • 15 Pages
    Powerful Essays
  • Satisfactory Essays

    Project Management

    • 289 Words
    • 2 Pages

    Planned completion dates (Use Predecessor relationships to sequence tasks)Planned Milestones (Use Predecessor relationships to sequence tasks)…

    • 289 Words
    • 2 Pages
    Satisfactory Essays
  • Good Essays

    Organization’s Goals

    • 417 Words
    • 2 Pages

    Time-Frame – as I experience before, some companies set goals to be meet in a time-frame inappropriate, most of the time they are setting goals in short time of period. They should know it if the period of time they are setting goals is appropriate. Otherwise; will put the company in the wrong direction.…

    • 417 Words
    • 2 Pages
    Good Essays
  • Powerful Essays

    KBR, Inc. is one of the world's premiere engineering, procurement and construction companies with a presence in five continents, offering services through ten business units. They provide defense services for the United States and other international government agencies, along with, being known as the leader of the oil and gas industry. This company has completed ground-breaking projects like producing the world's largest Floating Production Storage and Offloading vessels. KBR performs numerous projects at any given time, and usually contributes to multiple elements of each project. An issue that arises with accounting for multiple deliverable contracts is deciding when and how to recognize revenue. A company must first determine if they should recognize revenue for the contract as a whole unit or as separate units of accounting. Next, the measurement of revenue recognition must be calculated. The final step is to determine when the revenue will be recognized. Typically, this is based on the type of project or contract at hand.…

    • 1277 Words
    • 6 Pages
    Powerful Essays
  • Satisfactory Essays

    Task goals- includes bottom line targets that are measured by KPIs, production goals, deadlines, and quality standards…

    • 295 Words
    • 1 Page
    Satisfactory Essays
  • Powerful Essays

    Otudtdtclt

    • 1667 Words
    • 7 Pages

    Tracy spoke with an accountant, and together they decided that Tracy should use the accrual method of accounting because she may, in the future, give credit terms to her clients. Tracy’s business will use real time posting, an accounting period of 12 months, and a fiscal year beginning January 2010.…

    • 1667 Words
    • 7 Pages
    Powerful Essays
  • Powerful Essays

    It would be useful to recognize revenue as the productive activity takes place when the earnings process occurs over long periods of time. A good example is long-term projects in the construction industry.…

    • 1222 Words
    • 5 Pages
    Powerful Essays
  • Satisfactory Essays

    Business Admin NVQ 201.1

    • 730 Words
    • 3 Pages

    It is beneficial to agree realistic targets as it makes sure the projects are not rushed, people are not put under unnecessary stress, colleagues and managers are not being let down and the client is getting what they asked for.…

    • 730 Words
    • 3 Pages
    Satisfactory Essays
  • Good Essays

    (TCO A) In accounting for a long-term construction-type contract using the percentage-of-completion method, the gross profit recognized during the first year would be the estimated total gross profit from the contract, multiplied by the percentage of the costs incurred during the year to the (Points : 6)…

    • 2248 Words
    • 9 Pages
    Good Essays
  • Satisfactory Essays

    A component of an entity comprises operations and cash flows that can be clearly distinguished,…

    • 349 Words
    • 2 Pages
    Satisfactory Essays
  • Satisfactory Essays

    Business Law

    • 349 Words
    • 2 Pages

    c. How would you apply the GAAP criteria for revenue recognition to account for the revenues under this contract? Explain your logic for both realizable and earned.…

    • 349 Words
    • 2 Pages
    Satisfactory Essays
  • Powerful Essays

    The authors of our text defines a milestone as “ Identifiable and noteworthy events marking significant progress on the…

    • 2212 Words
    • 9 Pages
    Powerful Essays
  • Powerful Essays

    Project Management

    • 2439 Words
    • 10 Pages

    Milestone schedule is a list of target dates or times for the achievement of key events in the project timetable.…

    • 2439 Words
    • 10 Pages
    Powerful Essays
  • Powerful Essays

    Groupon Case Assignment 2014

    • 5787 Words
    • 27 Pages

    Phillips, T. J., Jr., M. S. Luehlfing, and C. M. Daily. 2001. The right way to recognize revenue. Journal of…

    • 5787 Words
    • 27 Pages
    Powerful Essays
  • Satisfactory Essays

    The case provides students with an understanding of the criteria for revenue recognition and the role of accrual accounting in reflecting timing differences between cash receipts and product/service delivery, especially in situations where there are multiple deliverables.…

    • 411 Words
    • 2 Pages
    Satisfactory Essays