e the royalty recognition constraint If a retailer determines that the license

E the royalty recognition constraint if a retailer

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the later of when the usage occurs or the performance obligation has been satisfied (i.e., the royalty recognition constraint). If a retailer determines that the license is not the predominant item to which the royalty relates, the retailer must estimate the transaction price (including consideration of the constraint) and determine the measure of progress that faithfully depicts its performance related to the license performance obligation. Appropriate methods to measure progress toward complete satisfaction of a performance obligation include output methods and input methods. When determining the appropriate method for measuring progress, an entity considers the nature of the good or service it promised to transfer to the customer. Regardless of whether a retailer applies the royalty recognition constraint or the general constraint on variable consideration, it is still required to allocate sales- or usage-based royalties to separate performance obligations in the contract using the relative standalone selling price method, unless an exception applies. How we see it Accounting for credit card arrangements is complex and requires judgment. Under ASC 606, the pattern of revenue recognition may differ from what a retailer recorded under legacy GAAP. Sales tax Retailers often collect taxes from customers (e.g., sales tax) that they remit to the government. The standard includes a general principle that an entity should determine the transaction price, excluding amounts collected on behalf of third parties (e.g., some sales taxes). Constituents raised concerns that compliance with this aspect of the standard could be complex and costly for many entities because they would need to evaluate taxes they collect in each jurisdiction in which they operate to determine whether a tax is levied on the entity (and thus, the entity would include that amount in revenue and expenses) or the customer (and thus, the entity would exclude that amount from revenue and expenses because it is acting as a pass-through agent).
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EY AccountingLink | ey.com/us/accountinglink 16 | Technical Line How the new revenue standard affects retail and consumer products entities To alleviate these concerns, the standard 21 allows entities to make an accounting policy election to exclude sales taxes and other similar taxes from the measurement of the transaction price. The standard says the scope of the policy election includes “all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the entity from a customer (for example, sales, use, value added, and some excise taxes)” but not taxes imposed on an entity’s gross receipts or the inventory procurement process. An entity that makes this election should comply with the disclosure requirements of ASC 235-10-50-1 through 50-6.
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  • Fall '17
  • meenakshi

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