day 14 revenue 2 2009 spring v6 - RevenueRecognition(II)...

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Revenue Recognition (II) Dr. James Gong
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Learning Objectives At the end of this session, you should be able to: Explain the revenue recognition principles for multiple- deliverable sales arrangements Apply the software accounting method for different types  of software Appreciate the challenges in revenue recognition
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What are revenues?
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What are revenues? Inflows or other enhancement of assets of  an entity or settlement of its liabilities or a  combination of both, from delivering or  producing goods, rendering services, or  other activities that constitute the entity’s  ongoing major or central operations.
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What Are Four Revenue  Recognition Principles?
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What Are Four Revenue Recognition  Principles? SEC SAB 104 Persuasive evidence of an order arrangement exists Delivery of the ordered goods has occurred or services  have been rendered The sellers’ price to the buyer is fixed or determinable Collectability of the sale proceeds is reasonably assured
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Multiple Deliverable Contracts Some contracts contain multiple revenue-generating  activities. Examples are software, extended warranty, fractional interest  (ownership) programs In some arrangements, the different revenue-generating  activities (deliverables) are  Sufficiently separable and  There exists sufficient evidence of the fair values of separable items In other arrangements, some or all of the deliverables are  Not independently functional, or  There is not sufficient evidence of the fair values of separable items    
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Accounting for Multiple Deliverable  Contracts Practice problem due today   Computer Connections sells personal computers in bulk to universities for use  by faculty and students in classrooms and labs. The systems consist of CPUs,  monitors, and keyboards, all of which can be purchased separately on the open  market. Further, the CPUs do not contain software that is more than incidental  (all software is purchased separately and loaded by the specific university).  On July 1, Skolar University orders 500 personal computer systems from  Computer Connections, consisting of CPUs, monitors, and keyboards. On  August 1, Computer Connections delivers the CPUs and keyboards but informs  Skolar that there will be a one month delay in delivering the monitors. The CPU  could function with other monitors manufactured by others who have them  readily available. Skolar University is entitled to a refund equal to the separate  price of any item in the system that is not delivered. The arrangement does not  contain any general rights of return. Computer Connections is evaluating 
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day 14 revenue 2 2009 spring v6 - RevenueRecognition(II)...

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