Pay to play arrangements In some arrangements an entity pays an up front fee to

Pay to play arrangements in some arrangements an

This preview shows page 6 - 8 out of 28 pages.

manufacturer and should be treated as a reduction of the transaction price. “Pay to play” arrangements — In some arrangements, an entity pays an up-front fee to the customer in order to obtain a new contract. In most cases, these payments are not associated with any distinct good or service to be received from the customer and should be treated as a reduction of the transaction price. Determining whether a good or service is “distinct” may result in an entity reaching a different conclusion than it did under legacy GAAP.
Image of page 6
EY AccountingLink | ey.com/us/accountinglink 7 | Technical Line How the new revenue standard affects retail and consumer products entities Purchase of goods or services — Entities often enter into supplier-vendor arrangements with their customers in which the customers provide them with a distinct good or service. For example, a software entity may buy its office supplies from one of its software customers. In such situations, the entity has to carefully determine whether the payment made to the customer is solely for the goods and services received, or whether part of the payment is actually a reduction of the transaction price for the goods and services the entity is transferring to the customer. Timing of recognition of consideration paid or payable to a customer If the consideration paid or payable to a customer is a discount or refund for goods or services provided to a customer, the guidance on consideration payable to a customer says this reduction of the transaction price (and thus revenue) should be recognized at the later of when the entity transfers the promised goods or services to the customer or when the entity promises to pay the consideration. For example, if goods subject to a discount through a coupon are already delivered to the retailers, the discount would be recognized when the coupons are issued. However, if a coupon is issued that can be used on a new line of products that have not yet been sold to retailers, the discount would be recognized upon sale of the product to a retailer. Even if a sales incentive would result in a loss on the sale of the product or service, an entity would recognize a liability for that sales incentive at the later of when it recognizes revenue on the good or service or the date at which the sales incentive was offered. That is, an entity would not recognize the loss before either date. However, an entity would also need to consider whether the offer indicates an impairment of existing inventory under ASC 330. To determine the appropriate timing of recognition of consideration payable to a customer, retail and consumer products entities also need to consider the guidance on variable consideration. That is, the standard’s definition of variable consideration is broad and includes amounts such as coupons or other forms of credits that can be applied to the amounts owed to an entity by the customer.
Image of page 7
Image of page 8

You've reached the end of your free preview.

Want to read all 28 pages?

  • Fall '17
  • meenakshi

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Ask Expert Tutors You can ask You can ask ( soon) You can ask (will expire )
Answers in as fast as 15 minutes