Boston Automation

Boston Automation - Boston Automation BOSTON AUTOMATION...

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Boston Automation BOSTON AUTOMATION SYSTEMS INC. Boston Automations Systems is a capital equipment and testing instrument manufacturer and supplier to electronics based and semiconductor industries. During 1999, Boston Automation had three divisions- Glendale division, Advanced Technology Division and Technical Devices division. Problem Statement: The CFO 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 by the customer acceptance provisions, when should revenue be recognized. SAB 101 The guidelines are as follows: 1. Persuasive evidence exists 2. Delivery of ordered goods has occurred or services have been rendered. 3. The sellers price to the buyer is fixed or determinable 4. Collectability of the sales proceeds is reasonable assured ANS1. The revenue recognition methods adopted by Boston Automation Systems are as follows: 1. Product revenue is recognized upon shipment i.e Sales Method. The products of the company come with a warranty, and the company recognizes the estimated cost of this warranty when the revenue has been recognized.
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2. The service revenues are recognized as the services are provided or over the period of the contract as applicable i.e Delivery method. The service revenue is separated from product, installation and maintenance revenue based on the amounts charged when they are separately sold. 3. For certain contracts revenue is recognized using percentage-of-completion accounting method based upon an efforts Expended method. This is recognition proportionally over the performance of a long term contract. The revenue recognition system that would be most affected is the product revenue recognition system using the sales method. This is so as it doesn’t satisfy the Delivery clause given by SAB 101. It mandates that revenue is recognized when delivery has occurred and delivery is not considered to have occurred unless the product has been delivered to the customer’s place of business. Here revenue is being recognized as soon as the products are shipped. Also it fails on the performance criteria, which mandates acceptance of the goods by the customer before revenue is recognized. This method will fail if the shipment does not reach on time or if there is some mishap midway. The method of percentage-of-completion accounting will not be much affected by the SAB 101 guidelines as long as dependable estimates of contract revenue, contract costs, and progress toward completion are present. In this method the contract clearly specifies enforceable rights of the parties, consideration to be exchanged and manner and terms of settlement. The Service revenue recognition method using the delivery method will not be impacted at all as the
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This note was uploaded on 10/24/2011 for the course ECON 1287 taught by Professor Terrygustafson during the Spring '10 term at CSU Chico.

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Boston Automation - Boston Automation BOSTON AUTOMATION...

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