AKUNTANSI PENDAPATAN DARI KONTRAK PELANGGAN

PSAK 72

Agenda

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PSAK 72

• PSAK 72 merupakan adopsi IFRS 15 Revenue from contracts with customers effective 2018, kecuali:
• Item terkait IFRS 16 Leases (karena belum diadopsi) 🡪 hak penggunaan aset
• Tanggal efektif dan penarikan standar yang telah ada
• Standar ini bersifat principles based
• Standar komprehensif karena mengatur semua jenis Pendapatan yang terkait dengan kontrak pelanggan sehingga menghilangkan pengaturan dalam standar yang lain.

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PSAK yang Digantikan

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PSAK 72

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PSAK 72

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Tahapan dalam Pengakuan

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Tujuan

• Menetapkan prinsip tentang sifat, jumlah, waktu, dan ketidakpastian pendapatan dan arus kas yang timbul dari kontrak dengan pelanggan.
• Pencapaian tujuan
• Mengakui pendapatan untuk menggambarkan pengalihan barang atau jasa yang dijanjikan kepada pelanggan
• Mempertimbangkan syarat kontrak serta seluruh fakta dan keadaan yang relevan
• Untuk kontrak individual dan portfolio kontrak

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Ruang Lingkup

• Untuk seluruh kontrak dengan pelanggan, kecuali:
1. kontrak sewa - PSAK 30 Sewa;
2. kontrak asuransi - PSAK 62 Kontrak Asuransi;
3. instrumen keuangan - ED PSAK 71: Instrumen Keuangan, PSAK 65: Laporan Keuangan Konsolidasian, PSAK 66: Pengaturan Bersama, PSAK 4: Laporan Keuangan Tersendiri dan PSAK 15 Investasi pada Entitas Asosiasi dan Ventura Bersama; dan
4. Pertukaran nonmoneter antara entitas dalam lini bisnis yang sama untuk memfasilitasi penjualan kepada pelanggan atau pelanggan potensial 🡪 kontrak antara dua perusahaan minyak untuk menukarkan minyak untuk memenuhi permintaan dari pelanggan dalam lokasi yang berbeda secara tepat waktu.

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Pengakuan

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Mengidentifikan Kontrak

Entitas mencatat kontrak dgn pelanggan hanya jika seluruh kriteria berikut terpenuhi:

1. para pihak dalam kontrak telah menyetujui kontrak (secara tertulis, lisan atau sesuai dengan praktik bisnis pada umumnya) dan berkomitmen untuk melaksanakan kewajiban mereka masing-masing;
2. entitas dapat mengidentifikasi hak setiap pihak mengenai barang atau jasa yang akan dialihkan;
3. entitas dapat mengidentifikasi jangka waktu pembayaran barang atau jasa yang akan dialihkan;
4. kontrak memiliki substansi komersial (yaitu risiko, waktu, atau jumlah arus kas masa depan entitas diperkirakan berubah sebagai akibat dari kontrak); dan
5. kemungkinan besar entitas akan menagih imbalan yang akan menjadi haknya dalam pertukaran barang atau jasa yang akan dialihkan ke pelanggan.

Entitas hanya mempertimbangkan kemampuan dan intensi pelanggan untuk membayar jumlah imbalan ketika jatuh tempo. Jumlah imbalan yang akan menjadi hak entitas mungkin lebih kecil dari jumlah yang tercatat dalam kontrak jika imbalan bersifat variabel karena entitas dapat menawarkan suatu konsesi harga kepada pelanggan (lihat paragraf 52).

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Kombinasi Kontrak

• Entitas mengombinasikan dua atau lebih kontrak yang disepakati dan mencatat kontrak tersebut sebagai kontrak tunggal jika satu atau lebih kriteria berikut terpenuhi:
1. kontrak dinegosiasikan sebagai satu paket dengan tujuan komersial tunggal;
2. jumlah imbalan yang dibayarkan dalam satu kontrak bergantung pada harga atau pelaksanaan dari kontrak lain; atau
3. barang atau jasa yang dijanjikan dalam kontrak (atau beberapa barang atau jasa yang dijanjikan dalam setiap kontrak) merupakan kewajiban pelaksanaan tunggal sesuai dengan paragraf 22-30.

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Modifikasi Kontrak

• Modifikasi kontrak adalah perubahan dalam ruang lingkup atau harga kontrak (atau keduanya) yang disetujui oleh para pihak dalam kontrak.
• Entitas mencatat sebagai kontrak terpisah jika kondisi berikut terpenuhi:
• ruang lingkup kontrak meningkat karena penambahan barang atau jasa yang dijanjikan bersifat dapat dibedakan (distinct) (sesuai dengan paragraf 26-30); dan
• harga kontrak meningkat oleh sejumlah imbalan yang mencerminkan harga jual berdiri sendiri (stand-alone selling prices) entitas atas penambahan barang atau jasa yang dijanjikan dan penyesuaian yang tepat terhadap harga yang mencerminkan keadaan kontrak tertentu.

Modifikasi Kontrak

• Jika modifikasi kontrak tidak dicatat sebagai kontrak terpisah, maka entitas mencatat barang atau jasa yang dijanjikan yang belum dialihkan pada tanggal modifikasi kontrak dengan cara manapun di bawah ini yang dapat diterapkan:
• Entitas mencatat modifikasi kontrak seolah-olah modifikasi kontrak tersebut merupakan penghentian kontrak yang ada dan menciptakan kontrak baru, jika sisa barang atau jasa bersifat dapat dibedakan dari barang atau jasa yang dialihkan pada atau sebelum tanggal modifikasi kontrak. Jumlah imbalan yang dialokasikan pada sisa kewajiban pelaksanaan (atau pada sisa barang atau jasa yang bersifat dapat dibedakan dalam kewajiban pelaksanaan tunggal yang diidentifikasikan sesuai dengan paragraf 22(b)) adalah jumlah dari:
• (i) imbalan yang dijanjikan oleh pelanggan (termasuk jumlah yang telah diterima dari pelanggan) yang tercakup dalam estimasi harga transaksi dan yang belum diakui sebagai pendapatan; dan
• (ii) imbalan yang dijanjikan sebagai bagian dari modifikasikontrak.

Mengidentifikan Kewajiban Pelaksanaan

• Pada awal kontrak, entitas menilai barang atau jasa yang dijanjikan dalam kontrak dengan pelanggan dan mengidentifikasi sebagai kewajiban pelaksanaan setiap janji untuk mengalihkan kepada pelanggan baik:
• suatu barang atau jasa (atau sepaket barang atau jasa) yang bersifat dapat dibedakan; atau
• serangkaian barang atau jasa yang bersifat dapat dibedakan yang secara substansial sama dan memiliki pola pengalihan yang sama kepada pelanggan (lihat paragraf 23).

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Mengidentifikasi Kewajiban Pelaksanaan

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Barang atau Jasa Bersifat dapat Dibedakan

• Barang atau jasa yang dijanjikan kepada pelanggan bersifat dapat
• dibedakan jika kedua kriteria berikut terpenuhi:
1. pelanggan memperoleh manfaat dari barang atau jasa baik barang atau jasa itu sendiri atau bersama dengan sumber daya lain yang siap tersedia kepada pelanggan (yaitu barang atau jasa yang bersifat dapat dibedakan); dan
2. janji entitas untuk mengalihkan barang atau jasa kepada pelanggan dapat diidentifikasi secara terpisah dari janji lain dalam kontrak (yaitu janji untuk mengalihkan barang atau jasa yang bersifat dapat dibedakan dalam konteks kontrak tersebut).

Jika barang atau jasa yang dijanjikan bersifat tidak dapat dibedakan, entitas mengombinasikan barang atau jasa dengan barang atau jasa lain yang dijanjikan sampai entitas mengidentifikasi sepaket barang atau jasa tersebut bersifat dapat dibedakan.

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Penyelesaian Kewajiban Pelaksanaan

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Penyelesaian Kewajiban Pelaksanaan

• Entitas mengakui pendapatan ketika (atau selama) entitas menyelesaikan kewajiban pelaksanaan dengan mengalihkan barang atau jasa yang dijanjikan (yaitu aset) kepada pelanggan. Aset dialihkan ketika (atau selama) pelanggan memperoleh pengendalian atas aset.
• Pada awal kontrak entitas menentukan apakah entitas menyelesaikan kewajiban pelaksanaan sepanjang waktu (sesuai dengan paragraf 35-37) atau menyelesaikan kewajiban pelaksanaan pada suatu waktu tertentu (sesuai dengan paragraf 38).

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Kewajiban Pelaksanaan yang Diselesaikan Sepanjang Waktu�(Performance Obligation Over Time)

• Entitas mengalihkan pengendalian barang atau jasa sepanjang waktu dan, oleh karena itu, menyelesaikan kewajiban pelaksanaan dan mengakui pendapatan sepanjang waktu, jika satu dari kriteria berikut terpenuhi:
1. pelanggan secara simultan menerima dan mengonsumsi manfaat yang disediakan oleh kinerja entitas saat entitas melaksanakan kewajiban pelaksanaannya tersebut (lihat paragraf PP03-PP04);
2. kinerja entitas menciptakan atau meningkatkan aset (sebagai contoh, pekerjaan dalam proses) yang dikendalikan pelanggan sebagai aset yang diciptakan atau ditingkatkan (lihat paragraph PP05); atau
3. kinerja entitas tidak menciptakan suatu aset dengan penggunaan alternatif terhadap entitas (lihat paragraf 36) dan entitas memiliki hak yang dapat dipaksakan untuk pembayaran kinerja yang

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Kewajiban Pelaksanaan yang Diselesaikan Pada Waktu Tertentu�(Performance Obligation At a Point In Time)

• Jika kewajiban pelaksanaan tidak diselesaikan sepanjang waktu sesuai dengan paragraf 35-37, maka entitas menyelesaikan kewajiban pelaksanaan pada waktu tertentu.
• Untuk menentukan waktu tertentu dimana pelanggan memperoleh pengendalian atas aset yang dijanjikan dan entitas menyelesaikan kewajiban pelaksanaan, entitas mempertimbangkan persyaratan pengendalian dalam paragraf 31-34.
• Sebagai tambahan, entitas mempertimbangkan indikator pengalihan pengendalian, yang mencakup, tetapi tidak terbatas pada, hal berikut:
1. Entitas memiliki hak kini atas pembayaran aset
2. Pelanggan memiliki memiliki hak kepemilikan legal atas aset
3. Entitas telah mengalihkan kepemilikan fisik atas aset
4. Pelanggan memiliki risiko dan manfaat signifikan atas kepemilikan aset
5. Pelanggan telah menerima aset

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Pengukuran

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Menentukan Harga Transaksi

• Ketika (atau selama) kewajiban pelaksanaan diselesaikan, entitas mengakui pendapatan atas sejumlah harga transaksi (yang tidak termasuk estimasi atas imbalan variabel yang dibatasi sesuai dengan paragraf 56-58) yang dialokasikan terhadap kewajiban pelaksanaan.

Menentukan Harga Transaksi

• Entitas mempertimbangkan syarat kontrak dan praktik bisnis umum entitas untuk menentukan harga transaksi. Harga transaksi adalah jumlah imbalan yang diperkirakan menjadi hak entitas dalam pertukaran untuk mengalihkan barang atau jasa yang dijanjikan kepada pelanggan, tidak termasuk jumlah yang ditagih atas nama pihak ketiga (sebagai contoh, beberapa pajak penjualan). Imbalan yang dijanjikan dalam kontrak dengan pelanggan dapat mencakup jumlah tetap, jumlah variabel, atau keduanya.

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Menentukan Harga Transaksi

• Entitas mempertimbangkan syarat kontrak dan praktik bisnis umum entitas untuk menentukan harga transaksi. Sifat, waktu, dan jumlah imbalan yang dijanjikan oleh pelanggan mempengaruhi estimasi harga transaksi.
• Ketika menentukan harga transaksi, entitas mempertimbangkan dampak dari seluruh hal berikut:
1. imbalan variabel (lihat paragraf 50-55 dan 59);
2. estimasi pembatas imbalan variabel (lihat paragraf 56-58);
3. keberadaan komponen pendanaan signifikan dalam kontrak (lihat paragraf 60-65);
4. imbalan nonkas (lihat paragraf 66-69); dan
5. utang imbalan kepada pelanggan (lihat paragraf 70-72).

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Mengalokasikan Harga Transaksi terhadap Kewajiban Pelaksanaan

• Tujuan ketika mengalokasikan harga transaksi adalah entitas mengalokasikan harga transaksi terhadap setiap kewajiban pelaksanaan (atau barang atau jasa bersifat dapat dibedakan) dalam jumlah yang menggambarkan jumlah imbalan yang diharapkan menjadi hak entitas dalam pertukaran untuk mengalihkan barang atau jasa yang dijanjikan kepada pelanggan.
• Untuk memenuhi tujuan alokasi, entitas mengalokasikan harga transaksi terhadap setiap kewajiban pelaksanaan yang diidentifikasi dalam kontrak dengan dasar harga jual berdiri sendiri relatif (relative stand-alone selling price) sesuai dengan paragraf 76-80, kecuali diatur khusus dalam paragraf 81-83 (untuk alokasi diskon) dan paragraf 84-86 (untuk alokasi

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Biaya Kontrak

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Penyajian

• Ketika salah satu pihak dalam kontrak telah melaksanakan, entitas menyajikan kontrak dalam laporan posisi keuangan sebagai aset kontrak atau liabilitas kontrak, bergantung pada hubungan antara kinerja entitas dan pembayaran pelanggan. Entitas menyajikan hak tanpa syarat terhadap imbalan secara terpisah sebagai piutang.

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Pengungkapan

• Tujuan persyaratan pengungkapan adalah agar entitas mengungkapkan informasi yang cukup yang memungkinkan pengguna laporan keuangan memahami sifat, jumlah, waktu dan ketidakpastian pendapatan dan arus kas yang timbul dari kontrak dengan pelanggan. Untuk mencapai tujuan tersebut, entitas mengungkapkan informasi kualitatif dan kuantitatif tentang seluruh hal berikut:
1. kontrak dengan pelanggan (lihat paragraf 113-122);
2. pertimbangan signifikan dan perubahan dalam pertimbangan, yang dibuat dalam menerapkan Pernyataan ini terhadap kontrak tersebut (lihat paragraf 123-126); dan
3. aset yang diakui dari biaya untuk memperoleh atau memenuhi kontrak dengan pelanggan sesuai dengan paragraf 91 atau 95 (lihat paragraf 127-128).

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Pengungkapan

• Kontrak dengan Pelanggan
• Pemisahan Pendapatan
• Saldo Kontrak
• Kewajiban Pelaksanaan
• Harga Transaksi yang Dialokasikan terhadap Sisa Kewajiban Pelaksanaan
• Pertimbangan Signifikan dalam Penerapan Pernyataan Ini
• Menentukan Waktu Penyelesaian Kewajiban Pelaksanaan
• Menentukan harga transaksi dan jumlah yang dialokasikan untuk kewajiban pelaksanaan
• Aset yang Diakui dari Biaya untuk Memperoleh atau Memenuhi Kontrak dengan Pelanggan

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Tanggal Efektif

• Entitas menerapkan Pernyataan ini untuk periode tahun buku yang dimulai pada atau setelah 1 Januari 2019. Penerapan dini diperkenankan.
• Jika entitas menerapkan Pernyataan ini lebih dini, maka entitas mengungkapkan fakta tersebut.

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Ketentuan Transisi (Paragraf C02-C08)

• Entitas menerapkan Pernyataan ini menggunakan satu dari dua metode berikut:
1. secara retrospektif untuk setiap periode pelaporan sajian sebelumnya sesuai dengan PSAK 25: Kebijakan Akuntansi, Perubahan Estimasi Akuntansi, dan Kesalahan tunduk pada panduan (expedients) dalam paragraf C05; atau
2. secara retrospektif dengan dampak kumulatif atas penerapan secara awal Pernyataan ini diakui pada tanggal penerapan awal sesuai dengan paragraf C07-C08.

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Pedoman Penerapan

1. Pemisahaan Pendapatan
2. kewajiban pelaksanaan diselesaikan sepanjang waktu (paragraph PP2-PP13);
3. metode untuk mengukur kemajuan terhadap penyelesaian kewajiban pelaksanaan secara penuh (paragraf PP14-PP19);
4. penjualan dengan hak retur (paragraf PP20-PP27);
5. garansi (paragraf PP28-PP33);
6. imbalan prinsipal dibandingkan dengan agen (paragraf PP34-PP38);
7. opsi pelanggan untuk tambahan barang atau jasa (paragraph PP39-PP43);
8. hak pelanggan yang tidak dilaksanakan (paragraf PP44-PP47);

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Pedoman Penerapan

9. biaya dibayar di muka yang tidak dapat dikembalikan (dan beberapa biaya terkait) (paragraf PP48-PP51);
10. lisensi (paragraf PP52-PP63B);
11. perjanjian pembelian kembali (paragraf PP64-PP76)
12. pengaturan konsinyasi (paragraf PP77-PP78);
13. pengaturan bill-and-hold (paragraf PP79-PP82);
14. penerimaan pelanggan (paragraf PP83-PP86); dan
15. pengungkapan pemisahan pendapatan (paragraf PP87-PP89).

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Contoh

MENGIDENTIFIKASI KONTRAK CI02

• Contoh 1 – Kolektabilitas Imbalan
• Contoh 2 – Imbalan Bukan Berdasarkan Harga Tertulis – Konsesi Harga Implisit
• Contoh 3 – Konsesi Harga Implisit
• Contoh 4 – Penilaian Kembali Kriteria untuk Mengidentifikasi Kontrak

MODIFIKASI KONTRAK CI18

• Contoh 5 – Modifikasi Kontrak untuk Barang
• Contoh 6 – Perubahan Harga Transaksi Setelah Modifikasi Kontrak
• Contoh 7 – Modifikasi Kontrak Jasa
• Contoh 8 – Modifikasi yang Menghasilkan Penyesuaian Catch Up Kumulatif Terhadap Pendapatan
• Contoh 9 – Perubahan dalam Ruang Lingkup dan Harga yang Tidak Disetujui

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Contoh

MENGIDENTIFIKASI KEWAJIBAN PELAKSANAAN CI44

• Contoh 10 – Barang dan Jasa Tidak Bersifat Dapat Dibedakan
• Contoh 11 – Menentukan Apakah Barang atau Jasa Bersifat Dapat Dibedakan
• Contoh 12 – Janji Eksplisit dan Implisit dalam Kontrak

KEWAJIBAN PELAKSANAAN YANG DISELESAIKAN SEPANJANG WAKTU CI66

• Contoh 13 – Pelanggan Menerima dan Mengonsumsi Manfaat Secara Simultan
• Contoh 14 – Menilai Penggunaan Alternatif dan Hak atas Pembayaran
• Contoh 15 – Aset yang Tidak Memiliki Penggunaan Alternatif Bagi Entitas
• Contoh 16 – Hak yang Dapat Dipaksakan atas Pembayaran Pelaksanaan yang Diselesaikan Sampai Saat Ini
• Contoh 17 – Penilaian Apakah Kewajiban Pelaksanaan Diselesaikan Pada Waktu Tertentu atau Sepanjang Waktu

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Contoh

MENGUKUR KEMAJUAN TERHADAP PENYELESAIAN KEWAJIBAN PELAKSANAAN SECARA PENUH CI91

• Contoh 18 – Mengukur Kemajuan Ketika Membuat Barang atau Jasa Tersedia
• Contoh 19 – Bahan Baku Belum Terpakai

IMBALAN VARIABEL CI101

• Contoh 20 – Denda Menyebabkan Kenaikan Imbalan Variabel
• Contoh 21 – Mengestimasi Imbalan Variabel

MEMBATASI ESTIMASI IMBALAN VARIABEL CI109

• Contoh 22 – Hak Pengembalian
• Contoh 23 – Konsesi Harga
• Contoh 24 – Insentif Diskon Berdasarkan Volume
• Contoh 25 – Fees Manajemen yang Bergantung pada Pembatasan

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Contoh

• KEBERADAAN KOMPONEN KEUANGAN SIGNIFIKAN DI DALAM KONTRAK CI134
• Contoh 26 – Komponen Keuangan Signifikan dan Hak Pengembalian
• Contoh 27 – Pembayaran Ditahan Dalam Kontrak Jangka Panjang
• Contoh 28 – Menentukan Tingkat Diskonto
• Contoh 29 – Pembayaran di Muka dan Penilaian Tingkat Diskonto
• Contoh 30 – Pembayaran di Muka

IMBALAN NONKAS CI155

• Contoh 31 – Pemberian Hak atas Imbalan Nonkas

UTANG IMBALAN KEPADA PELANGGAN CI159

• Contoh 32 – Utang Imbalan Kepada Pelanggan

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Contoh

• MENGALOKASIKAN HARGA TRANSAKSI KEPADA KEWAJIBAN PELAKSANAAN CI163
• Contoh 33 – Metodologi Alokasi
• Contoh 34 – Mengalokasikan Diskon
• Contoh 35 – Alokasi Imbalan Variabel

BIAYA KONTRAK CI188

• Contoh 36 – Biaya Inkremental dalam Memperoleh Kontrak
• Contoh 37 – Biaya yang Menyebabkan Kenaikan Aset

PENYAJIAN CI197

• Contoh 38 – Liabilitas dan Piutang Kontrak
• Contoh 39 – Aset Kontrak Diakui untuk Pelaksanaan Entitas
• Contoh 40 – Piutang Diakui atas Pelaksanaan Entitas

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Contoh

PENGUNGKAPAN CI209

• Contoh 41 – Pemisahan Pendapatan – Pengungkapan Kuantitatif
• Contoh 42 – Pengungkapan Harga Transaksi yang Dialokasikan ke Sisa Kewajiban Pelaksanaan
• GARANSI CI222
• Contoh 44 – Garansi

IMBALAN PRINSIPAL DIBANDINGKAN DENGAN IMBALAN AGEN CI230

• Contoh 45 – Mengatur Provisi Barang atau Jasa (Entitas merupakan Agen)
• Contoh 46 – Janji untuk Menyediakan Barang atau Jasa (Entitas merupakan Prinsipal)
• Contoh 46A - Janji untuk Menyediakan Barang atau Jasa (Prinsipal)
• Contoh 47 – Janji untuk Menyediakan Barang atau Jasa (Prinsipal)
• Contoh 48 – Mengatur Provisi Barang atau Jasa (Entitas merupakan Agen)
• Contoh 48A – Entitas merupakan Prinsipal dan Agen dalam Kontrak yang Sama

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Contoh

OPSI PELANGGAN ATAS BARANG DAN JASA TAMBAHAN CI249

• Contoh 49 – Opsi yang Memberikan Pelanggan Hak Material (Voucher Diskon)
• Contoh 50 – Opsi yang Tidak Memberikan Pelanggan Hak yang
• Bersifat Material (Tambahan Barang atau Jasa)
• Contoh 51 – Opsi yang Memberikan Pelanggan Hak Material (Opsi Pembaharuan)
• Contoh 52 – Program Loyalitas Pelanggan

FEES DIMUKA YANG TIDAK DAPAT DIKEMBALIKAN CI271

• Contoh 53 – Fee Dimuka yang Tidak Dapat Dikembalikan

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Contoh

LISENSI CI275

• Contoh 54 – Hak Menggunakan Kekayaan Intelektual
• Contoh 55 – Lisensi Kekayaan Intelektual
• Contoh 56 – Mengidentifikasi Lisensi yang Bersifat Dapat dibedakan
• Contoh 57 – Hak Waralaba
• Contoh 58 – Akses ke Lisensi Intelektual
• Contoh 59 – Hak Menggunakan Kekayaan Intelektual
• Contoh 60 – Royalti Berbasis Penjualan untuk Lisensi Kekayaan Intelektual
• Contoh 61 – Akses Kekayaan Intelektual

PERJANJIAN JUAL BELI KEMBALI CI314

• Contoh 62 – Perjanjian Jual Beli Kembali

PENGATURAN BILL-AND-HOLD CI322

• Contoh 63 – Pengaturan Bill-and-Hold

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LO 5

Determining Transaction Price—Step 3

Time Value of Money

• When contract (sales transaction) involves a significant financing component.
• Interest accrued on consideration to be paid over time.
• Fair value determined either by measuring the consideration received or by discounting the payment using an imputed interest rate.
• Company reports as interest expense or interest revenue.

Time Value of Money

Facts: On July 1, 2015, SEK Company sold goods to Silva Company for R$900,000 in exchange for a 4-year, zero-interest-bearing note with a face amount of R$1,416,163. The goods have a cost on SEK’s books of R$590,000.

LO 5

EXTENDED PAYMENT TERMS

Questions: (a) How much revenue should SEK Company record on July 1, 2015? (b) How much revenue should it report related to this transaction on December 31, 2015?

Entry to record SEK’s sale to Silva Company on July 1, 2015, is as follows.

Notes Receivable 1,416,163

Sales Revenue 900,000

Discount on Notes Receivable 516,163

Cost of Goods Sold 590,000

Inventory 590,000

ILLUSTRATION 18-12

Transaction Price -Extended Payment Terms

Time Value of Money

LO 5

EXTENDED PAYMENT TERMS

Questions: (a) How much revenue should SEK Company record on July 1, 2015? (b) How much revenue should it report related to this transaction on December 31, 2015?

Entry to record interest revenue at the end of the year, December 31, 2015.

Discount on Notes Receivable 54,000

Interest Revenue (12% x ½ x $900,000) 54,000

Companies are not required to reflect the time value of money if the time period for payment is less than a year.

ILLUSTRATION 18-12

Transaction Price -Extended Payment Terms

Facts: On July 1, 2015, SEK Company sold goods to Silva Company for R$900,000 in exchange for a 4-year, zero-interest-bearing note with a face amount of R$1,416,163. The goods have a cost on SEK’s books of R$590,000.

LO 5

Determining Transaction Price—Step 3

Non-Cash Consideration

Goods, services, or other non-cash consideration.

• Companies sometimes receive contributions (e.g., donations and gifts).
• Customers sometimes contribute goods or services, such as equipment or labor, as consideration for goods provided or services performed.
• Companies generally recognize revenue on the basis of the fair value of what is received.

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LO 5

Determining Transaction Price—Step 3

Consideration Paid or Payable to Customers

• May include discounts, volume rebates, coupons, free products, or services.
• In general, these elements reduce the consideration received and the revenue to be recognized.

Consideration Paid or Payable

Facts: Sansung Company offers its customers a 3% volume discount if they purchase at least ¥2 million of its product during the calendar year. On March 31, 2015, Sansung has made sales of ¥700,000 to Artic Co. In the previous 2 years, Sansung sold over ¥3,000,000 to Artic in the period April 1 to December 31.

LO 5

VOLUME DISCOUNT

Questions: How much revenue should Sansung recognize for the first 3 months of 2015?

Sansung makes the following entry on March 31, 2015.

Accounts Receivable 679,000

Sales Revenue 679,000

Sansung should reduce its revenue by ¥21,000 (¥700,000 x 3%) because it is

probable that it will provide this rebate.

ILLUSTRATION 18-13

Transaction Price – Volume Discount

LO 5

Questions: How much revenue should Sansung recognize for the first 3 months of 2015?

Assuming Sansung’s customer meets the discount threshold, Sansung makes the following entry.

Cash 679,000

Accounts Receivable 679,000

If Sansung’s customer fails to meet the discount threshold, Sansung makes the following entry upon payment.

Cash 700,000

Accounts Receivable 679,000

Sales Discounts Forfeited 21,000

Consideration Paid or Payable

ILLUSTRATION 18-13

Transaction Price – Volume Discount

LO 6

Allocating Transaction Price to Separate Performance Obligations—Step 4

• Based on their relative fair values.
• Best measure of fair value is what the company could sell the good or service for on a standalone basis.
• If not available, companies should use their best estimate of what the good or service might sell for as a standalone unit.

LO 6

Allocating Transaction Price to Separate Performance Obligations—Step 4

ILLUSTRATION 18-14

Transaction Price

Allocation

LO 7

Recognizing Revenue When (or as) Each

Performance Obligation Is Satisfied-Step 5

Company satisfies its performance obligation when the customer obtains control of the good or service.

Change in Control Indicators

• Company has a right to payment for asset.
• Company has transferred legal title to asset.
• Company has transferred physical possession of asset.
• Customer has significant risks and rewards of ownership.
• Customer has accepted the asset.

LO 7

Recognizing Revenue When (or as) Each

Performance Obligation Is Satisfied-Step 5

Recognizing revenue from a performance obligation over time

• Measure progress toward completion
• Method for measuring progress should depict transfer of control from company to customer.
• Most common are cost-to-cost and units-of-delivery methods.
• Objective of methods is to measure extent of progress in terms of costs, units, or value added.

LO 7

Recognizing Revenue When (or as) Each

Performance Obligation Is Satisfied-Step 5

Step in Process

1. Identify the contract with customers.

​

​

​

Description

A contract is an agreement that creates enforceable rights or obligations.

​

​

Implementation

A company applies the revenue guidance to contracts with customers and must determine if new performance obligations are created by a contract modification.

ILLUSTRATION 18-20

Summary of the

Five-Step Revenue

Recognition Process

LO 7

Recognizing Revenue When (or as) Each

Performance Obligation Is Satisfied-Step 5

Step in Process

2. Identify the separate performance obligations in the contract

Description

A performance obligation is a promise in a contract to provide a product or service to a customer.

A performance obligation exists if the customer can benefit from the good or service on its own or together with other readily available resources.

Implementation

A contract may be comprised of multiple performance obligations.

Accounting is based on evaluation of whether the product or service is distinct within the contract.

If each of the goods or services is distinct, but is interdependent and interrelated, these goods and services are combined and reported as one performance obligation.

ILLUSTRATION 18-20

Summary of the

Five-Step Revenue

Recognition Process

LO 7

Recognizing Revenue When (or as) Each

Performance Obligation Is Satisfied-Step 5

Step in Process

3. Determine the transaction price.

Description

Transaction price is the amount of consideration that a company expects to receive from a customer in exchange for transferring goods and services.

Implementation

In determining the transaction price, companies must consider the following factors:

1. variable consideration,
2. time value of money,
3. Non-cash consideration, and
4. consideration paid or payable to customer.

ILLUSTRATION 18-20

Summary of the

Five-Step Revenue

Recognition Process

LO 7

Recognizing Revenue When (or as) Each

Performance Obligation Is Satisfied-Step 5

Step in Process

4. Allocate the transaction price to the separate performance obligation.

Description

If more than one performance obligation exists, allocate the transaction price based on relative fair values.

Implementation

The best measure of fair value is what the good service could be sold for on a standalone basis (standalone selling price). Estimates of standalone selling price can be based on

1. adjusted market assessment,
2. expected cost-plus a margin approach, or
3. a residual approach.

ILLUSTRATION 18-20

Summary of the

Five-Step Revenue

Recognition Process

LO 7

Recognizing Revenue When (or as) Each

Performance Obligation Is Satisfied-Step 5

Step in Process

5. Recognize revenue when each performance obligation is satisfied.

Description

A company satisfies its performance obligation when the customer obtains control of the good or service.

Implementation

Companies satisfy performance obligations either at a point in time or over a period of time. Companies recognize revenue over a period of time if

1. the customer controls the asset as it is created or
2. the company does not have an alternative use for the asset.

ILLUSTRATION 18-20

Summary of the

Five-Step Revenue

Recognition Process

Right of Return

LO 8

• Right of return is granted for product for various reasons (e.g., dissatisfaction with product).
• Company returning the product receives any combination of the following.
1. Full or partial refund of any consideration paid.
2. Credit that can be applied against amounts owed, or that will be owed, to the seller.
3. Another product in exchange.

Facts: Venden Company sells 100 products for €100 each to Amaya Inc. for cash. Venden allows Amaya to return any unused product within 30 days and receive a full refund. The cost of each product is €60. To determine the transaction price, Venden decides that the approach that is most predictive of the amount of consideration to which it will be entitled is the most likely amount. Using the most likely amount, Venden estimates that:

1. Three products will be returned.
2. The costs of recovering the products will be immaterial.
3. The returned products are expected to be resold at a profit.

LO 8

RIGHT OF RETURN

Question: How should Venden record this sale?

ILLUSTRATION 18-21

Recognition—Right of Return

Right of Return

Venden records the sale as follows with the expectation that three products will be returned:

LO 8

Question: How should Venden record this sale?

ILLUSTRATION 18-21

Recognition—Right of Return

Right of Return

Cash 10,000

Sales Revenue [€9,700 x (€100 x 97)] 9,700

Refund Liability (€100 x 3) 300

Venden records the cost of goods sold with the following entry.

Cost of Goods Sold 5,820

Estimated Inventory Returns (€60 x 3) 180

Inventory 6,000

When a return occurs, Venden records the following entries.

LO 8

Question: How should Venden record this sale?

ILLUSTRATION 18-21

Recognition—Right of Return

Right of Return

Refund Liability (2 x €100) 200

Accounts Payable 200

Returned Inventory (2 x €60) 120

Estimated Inventory Returns 120

Companies record the returned asset in a separate account from inventory to provide transparency.

Repurchase Agreements

LO 8

• Transfer control of (sell) an asset to a customer but have an obligation or right to repurchase.
• If obligation or right to repurchase is for an amount greater than or equal to selling price, then transaction is a financing transaction.

Facts: Morgan Inc., an equipment dealer, sells equipment on January 1, 2015, to Lane Company for £100,000. It agrees to repurchase this equipment on December 31, 2016, for a price of £121,000.

LO 8

REPURCHASE AGREEMENT

Question: How should Morgan Inc. record this transaction?

ILLUSTRATION 18-22

Recognition—Repurchase Agreement

Repurchase Agreements

Assuming an interest rate of 10 percent is imputed from the agreement, Morgan makes the following entry to record the financing on January 1, 2015.

Cash 100,000

Liability to Lane Company 100,000

LO 8

ILLUSTRATION 18-22

Recognition—Repurchase Agreement

Repurchase Agreements

Morgan Inc. records interest on December 31, 2016, as follows.

Interest Expense 10,000

Liability to Lane Company (£100,000 x 10%) 10,000

Question: How should Morgan Inc. record this transaction?

Morgan Inc. records interest and retirement of its liability to Lane Company on December 31, 2016, as follows.

Interest Expense 11,000

Liability to Lane Company (£110,000 x 10%) 11,000

Liability to Lane Company 121,000

Cash (£100,000 + £10,000 + £11,000) 121,000

Bill-and-Hold Arrangements

LO 8

• Contract under which an entity bills a customer for a product but the entity retains physical possession of the product until a point in time in the future.
• Result when buyer is not yet ready to take delivery but does take title and accepts billing.

Facts: Kaya Company sells ₺450,000 (cost ₺280,000) of fireplaces on March 1, 2015, to a local coffee shop, Baristo, which is planning to expand its locations around the city. Under the agreement, Baristo asks Kaya to retain these fireplaces in its warehouses until the new coffee shops that will house the fireplaces are ready. Title passes to Baristo at the time the agreement is signed.

LO 8

BILL AND HOLD

Question: When should Kaya recognize the revenue from this bill-and-hold arrangement?

ILLUSTRATION 18-23

Recognition—Bill and Hold

Kaya determines when it has satisfied its performance obligation to transfer a product by evaluating when Baristo obtains control of that product.

Bill-and-Hold Arrangements

LO 8

Question: When should Kaya recognize the revenue from this bill-and-hold arrangement?

ILLUSTRATION 18-23

Recognition—Bill and Hold

For Baristo to have obtained control of a product in a bill-and-hold arrangement, all of the following criteria should be met:

(a) The reason for the bill-and-hold arrangement must be substantive.

(b) The product must be identified separately as belonging to Baristo.

(c) The product currently must be ready for physical transfer to Baristo.

4. Kaya cannot have the ability to use the product or to direct it to another customer.

In this case, it appears that the above criteria were met, and therefore revenue recognition should be permitted at the time the contract is signed.

Bill-and-Hold Arrangements

LO 8

Question: When should Kaya recognize the revenue from this bill-and-hold arrangement?

ILLUSTRATION 18-23

Recognition—Bill and Hold

Bill-and-Hold Arrangements

Kaya makes the following entry to record the sale.

Accounts receivable 450,000

Sales Revenue 450,000

Kaya makes an entry to record the related cost of goods sold as follows.

Cost of Goods Sold 280,000

Inventory 280,000

Principal-Agent Relationships

LO 8

• Agent’s performance obligation is to arrange for principal to provide goods or services to a customer.
• Examples:
• Preferred Travel Company (agent) facilitates the booking of cruise excursions by finding customers for Regency Cruise Company (principal).
• Priceline (USA) (agent) facilitates the sale of various services such as car rentals at Hertz (USA) (principal).
• Amounts collected on behalf of the principal are not revenue of the agent.
• Revenue for agent is amount of commission received.

LO 8

Consignments

LO 8

• Manufacturers (or wholesalers) deliver goods but retain title to the goods until they are sold.
• Consignor (manufacturer or wholesaler) ships merchandise to the consignee (dealer), who is to act as an agent for the consignor in selling the merchandise.
• Consignor makes a profit on the sale.
• Carries merchandise as inventory.
• Consignee makes a commission on the sale.

LO 8

ILLUSTRATION 18-25

Recognition—Sales on Consignment

Consignments

LO 8

ILLUSTRATION 18-25

Recognition—Sales on Consignment

Consignments

Warranties

LO 8

Two types of warranties to customers:

• Product meets agreed-upon specifications in contract at time product is sold.
1. Warranty is included in sales price (assurance-type warranty).
• Not included in sales price of product (service-type warranty).
• Recorded as a separate performance obligation.

Facts: Maverick Company sold 1,000 Rollomatics during 2015 at a total price of $6,000,000, with a warranty guarantee that the product was free of any defects. The cost of Rollomatics sold is $4,000,000. The term of the assurance warranty is two years, with an estimated cost of $30,000. In addition, Maverick sold extended warranties related to 400 Rollomatics for 3 years beyond the 2-year period for $12,000.

WARRANTIES

Question: What are the journal entries that Maverick Company should make in 2015 related to the sale and the related warranties?

ILLUSTRATION 18-26

Performance Obligations and Warranties

Warranties

LO 8

Cash ($6,000,000 + $12,000) 6,012,000

Warranty Expense 30,000

Warranty Liability 30,000

Unearned Warranty Revenue 12,000

Sales Revenue 6,000,000

​

Cost of Goods Sold 4,000,000

Inventory 4,000,000

Question: What are the journal entries that Maverick Company should make in 2015 related to the sale and the related warranties?

ILLUSTRATION 18-26

Performance Obligations and Warranties

Warranties

To record the revenue and liabilities related to the warranties:

To reduce inventory and recognize cost of goods sold:

LO 8

Non-Refundable Upfront Fees

LO 8

• Payments from customers before
• Delivery of a product.
• Performance of a service.
• Generally relate to initiation, activation, or setup of a good or service to be provided or performed in the future.
• Most cases, upfront payments are nonrefundable.
• Examples include:
• Membership fee in a health club.
• Activation fees for phone, Internet, or cable.

Presentation

PRESENTATION AND DISCLOSURE

LO 9

Contract Assets and Liabilities

• Contract assets are of two types:
• Unconditional rights to receive consideration because company has satisfied its performance obligation.
• Conditional rights to receive consideration because company has satisfied one performance obligation but must satisfy another performance obligation before it can bill the customer.

Facts: On January 1, 2015, Finn Company enters into a contract to transfer Product A and Product B to Obermine Co. for €100,000. The contract specifies that payment of Product A will not occur until Product B is also delivered. In other words, payment will not occur until both Product A and Product B are transferred to Obermine. Finn determines that standalone prices are €30,000 for Product A and €70,000 for Product B. Finn delivers Product A to Obermine on February 1, 2015. On March 1, 2015, Finn delivers Product B to Obermine.

LO 9

CONTRACT ASSET

Question: What journal entries should Finn Company make in regards to this contract in 2015?

ILLUSTRATION 18-29

Contract Asset Recognition and Presentation

Presentation

Contract Asset 30,000

Sales Revenue 30,000

Question: What journal entries should Finn Company make in regards to this contract in 2015?

On February 1, 2015, Finn records the following entry:

On February 1, Finn does not record an accounts receivable because it does not have an unconditional right to receive the €100,000 unless it also transfers Product B to Obermine. When Finn transfers Product B on March 1, 2015, it makes the following entry.

LO 9

ILLUSTRATION 18-29

Contract Asset Recognition and Presentation

Accounts Receivable 100,000

Contract Asset 30,000

Sales Revenue 70,000

Presentation

Facts: On March 1, 2015, Henly Company enters into a contract to transfer a product to Propel Inc. on July 31, 2015. It is agreed that Propel will pay the full price of $10,000 in advance on April 1, 2015. The contract is non-cancelable. Propel, however, does not pay until April 15, 2015, and Henly delivers the product on July 31, 2015. The cost of the product is

$7,500.

LO 9

CONTRACT LIABILITY

Question: What journal entries are required in 2015?

ILLUSTRATION 18-30

Contract Liability Recognition and Presentation

No entry is required on March 1, 2015:

• Neither party has performed on the contract.
• Neither party has an unconditional right as of March 1, 2015.

Presentation

LO 9

Question: What journal entries are required in 2015?

Cash 10,000

Unearned Sales Revenue 10,000

On receiving the cash on April 15, 2015, Henly records the following entry.

Unearned Sales Revenue 10,000

Sales Revenue 10,000

On satisfying the performance obligation on July 31, 2015, Henly records the following entry to record the sale.

ILLUSTRATION 18-30

Contract Liability Recognition and Presentation

Cost of Good Sold 7,500

Inventory 7,500

In addition, Henly records cost of goods sold as follows.

Presentation

LO 9

Costs to Fulfill a Contract

• Companies divide fulfillment costs (contract acquisition costs) into two categories:
• Those that give rise to an asset.
• Those that are expensed as incurred.

Presentation

LO 9

Collectibility

• Credit risk that a customer will be unable to pay in accordance with the contract.
• Whether a company will get paid is not a consideration in determining revenue recognition.
• Amount recognized as revenue is not adjusted for customer credit risk.

Presentation

Disclosure

LO 9

Companies disclose qualitative and quantitative information about the following:

• Contracts with customers.
• Significant judgments.
• Assets recognized from costs incurred to fulfill a contract.

Disclosure

LO 9

Companies provide a range of disclosures:

• Disaggregation of revenue.
• Reconciliation of contract balances.
• Remaining performance obligations.
• Cost to obtain or fulfill contracts.
• Other qualitative disclosures.
• Significant judgments and changes in them.
• Minimum revenue not subject to variable consideration constraint.

REVENUE RECOGNITION OVER TIME

Under certain circumstances companies recognize revenue over time.

The most notable context in which revenue may be recognized over time is long-term construction contract accounting.

LO 10 Apply the percentage-of-completion method for long-term contracts.

APPENDIX 18A

LONG-TERM CONSTRUCTION CONTRACTS

REVENUE RECOGNITION OVER TIME

Long-term contracts frequently provide that seller (builder) may bill purchaser at intervals.

• Examples:
• Development of military and commercial aircraft
• Weapons-delivery systems
• Space exploration hardware

LO 10

APPENDIX 18A

LONG-TERM CONSTRUCTION CONTRACTS

REVENUE RECOGNITION OVER TIME

A company recognizes revenue over time if at least one of the following two criteria is met:

• Company’s performance creates or enhances an asset (e.g., work in process) that the customer controls as the asset is created or enhanced; or
• Company’s performance does not create an asset with an alternative use. In addition…

LO 10

APPENDIX 18A

LONG-TERM CONSTRUCTION CONTRACTS

REVENUE RECOGNITION OVER TIME

In addition at least one of the following criteria must be met:

• The customer simultaneously receives and consumes the benefits of the entity’s performance as the entity performs.
• Another company would not need to substantially re-perform the work the company has completed to date if that other company were to fulfill the remaining obligation to the customer.
• The company has a right to payment for its performance completed to date, and it expects to fulfill the contract as promised.

LO 10

APPENDIX 18A

LONG-TERM CONSTRUCTION CONTRACTS

If criterion 1 or 2 is met, then a company recognizes revenue over time if it can reasonably estimate its progress toward satisfaction of the performance obligations.

• Company recognizes revenues and gross profits each period based upon the progress of the construction—referred to as the percentage-of-completion method.
• If criteria are not met, the company recognizes revenues and gross profit when the contract is completed, referred to as the cost-recovery (zero-profit) method.

LO 10

APPENDIX 18A

LONG-TERM CONSTRUCTION CONTRACTS

REVENUE RECOGNITION OVER TIME

Measuring the Progress Toward Completion

Most popular input measure used to determine the progress toward completion is the cost-to-cost basis.

LO 10

APPENDIX 18A

LONG-TERM CONSTRUCTION CONTRACTS

Percentage-of-Completion Method

LO 10

Percentage-of-Completion Method

Revenue to Recognized Cost-to-Cost Basis

ILLUSTRATION 18A-1

ILLUSTRATION 18A-2

ILLUSTRATION 18A-3

APPENDIX 18A

LONG-TERM CONSTRUCTION CONTRACTS

Illustration: Hardhat Construction Company has a contract to construct a £4,500,000 bridge at an estimated cost of £4,000,000. The contract is to start in July 2015, and the bridge is to be completed in October 2017. The following data pertain to the construction period.

LO 10

APPENDIX 18A

PERCENTAGE-OF-COMPLETION METHOD

ILLUSTRATION 18A-4

LO 10

APPENDIX 18A

PERCENTAGE-OF-COMPLETION METHOD

ILLUSTRATION 18A-5

LO 10

APPENDIX 18A

PERCENTAGE-OF-COMPLETION METHOD

Illustration: Percentage-of-Completion Revenue, Costs, and Gross Profit by Year

ILLUSTRATION 18A-6

LO 10

APPENDIX 18A

PERCENTAGE-OF-COMPLETION METHOD

ILLUSTRATION 18A-7

ILLUSTRATION 18A-6

PERCENTAGE-OF-COMPLETION METHOD

APPENDIX 18A

LO 10

Illustration: Content of Construction in Process Account—Percentage-of-Completion Method

ILLUSTRATION 18A-8

LO 10

APPENDIX 18A

PERCENTAGE-OF-COMPLETION METHOD

Financial Statement Presentation—Percentage-of-Completion

ILLUSTRATION 18A-9

Computation of Unbilled Contract Price at 12/31/15

LO 10

APPENDIX 18A

PERCENTAGE-OF-COMPLETION METHOD

Financial Statement Presentation—Percentage-of-Completion Method (2015)

ILLUSTRATION 18A-10

LO 10

APPENDIX 18A

PERCENTAGE-OF-COMPLETION METHOD

LO 10

APPENDIX 18A

PERCENTAGE-OF-COMPLETION METHOD

Financial Statement Presentation—Percentage-of-Completion Method (2016)

ILLUSTRATION 18A-11

This method recognizes revenue only to the extent of costs incurred that are expected to be recoverable. Only after all costs are incurred is gross profit recognized.

LO 11 Apply the cost-recovery method for long-term contracts.

Cost-Recovery (Zero-Profit) Method

APPENDIX 18A

LONG-TERM CONSTRUCTION CONTRACTS

APPENDIX 18A

COST-RECOVERY (ZERO-PROFIT) METHOD

LO 11

Illustration: Hardhat Construction would report the following revenues and costs for 2015–2017.

ILLUSTRATION 18A-14

APPENDIX 18A

COST-RECOVERY (ZERO-PROFIT) METHOD

LO 11

ILLUSTRATION 18A-14

Cost-Recovery Method

Revenue, Costs, and

Gross Profit by Year

ILLUSTRATION 18A-15

Journal Entries—

Cost-Recovery Method

APPENDIX 18A

COST-RECOVERY (ZERO-PROFIT) METHOD

LO 11

ILLUSTRATION 18A-14

Cost-Recovery Method

Revenue, Costs, and

Gross Profit by Year

ILLUSTRATION 18A-16

Comparison of Gross Profit Recognized under Different Methods

APPENDIX 18A

COST-RECOVERY (ZERO-PROFIT) METHOD

LO 11

ILLUSTRATION 18A-17

Financial Statement Presentation—Cost- Recovery Method

1. Loss in Current Period on a Profitable Contract
• Percentage-of-completion method only, the estimated cost increase requires a current-period adjustment of gross profit recognized in prior periods.
2. Loss on an Unprofitable Contract
• Under both percentage-of-completion and cost-recovery methods, the company must recognize in the current period the entire expected contract loss.

Long-Term Contract Losses

LO 12 Identify the proper accounting for losses on long-term contracts.

APPENDIX 18A

LONG-TERM CONSTRUCTION CONTRACTS

Prepare the journal entries to record revenue and expense for 2014, 2015, and 2016 assuming the estimated cost to complete at the end of 2015 was $215,436.

Casper Construction Co.

Illustration: Loss in Current Period

Advance slide in presentation mode to reveal answers.

LO 12

APPENDIX 18A

LONG-TERM CONTRACT LOSSES

LO 12

Illustration: Loss in Current Period

APPENDIX 18A

LONG-TERM CONTRACT LOSSES

LO 12

Illustration: Loss in Current Period

APPENDIX 18A

LONG-TERM CONTRACT LOSSES

Prepare the journal entries for 2014, 2015, and 2016 assuming the estimated cost to complete at the end of 2015 was $246,038 instead of $170,100.

Casper Construction Co.

Illustration: Loss on Unprofitable Contract

LO 12

APPENDIX 18A

LONG-TERM CONTRACT LOSSES

$675,000 – 683,438 = (8,438) cumulative loss

LO 12

APPENDIX 18A

LONG-TERM CONTRACT LOSSES

Illustration: Loss on Unprofitable Contract

LO 12

APPENDIX 18A

LONG-TERM CONTRACT LOSSES

Illustration: Loss on Unprofitable Contract

For the Cost-Recovery method, companies would recognize the following loss :

LO 12

APPENDIX 18A

LONG-TERM CONTRACT LOSSES

Illustration: Loss on Unprofitable Contract

Franchises

Four types of franchising arrangements have evolved:

• Manufacturer-retailer
• Manufacturer-wholesaler
• Service sponsor-retailer
• Wholesaler-retailer

LO 13 Explain revenue recognition for franchises.

APPENDIX 18B

REVENUE RECOGNITION FOR FRANCHISES

Two sources of revenue:

• Sale of initial franchises and related assets or services, and
• Continuing fees based on the operations of franchises.

Franchises

LO 13

APPENDIX 18B

REVENUE RECOGNITION FOR FRANCHISES

The franchisor normally provides the franchisee with:

• Assistance in site selection
• Evaluation of potential income
• Supervision of construction activity
• Assistance in the acquisition of signs, fixtures, and equipment
• Bookkeeping and advisory services
• Employee and management training
• Quality control
• Advertising and promotion

Franchises

LO 13

APPENDIX 18B

REVENUE RECOGNITION FOR FRANCHISES

Performance obligations relate to:

• Right to open a business.
• Use of trade name or other intellectual property of the franchisor.
• Continuing services, such as marketing help, training, and in some cases supplying inventory and inventory management.

FRANCHISE ACCOUNTING

LO 13

APPENDIX 18B

REVENUE RECOGNITION FOR FRANCHISES

Franchisors commonly charge an initial franchise fee and continuing franchise fees:

• Initial franchise fee (payment for establishing the relationship and providing some initial services).
• Continuing franchise fees received
• In return for continuing rights granted by the agreement.
• For providing management training, advertising and promotion, legal assistance, and other support.

LO 13

APPENDIX 18B

REVENUE RECOGNITION FOR FRANCHISES

FRANCHISE ACCOUNTING

Facts: Tum’s Pizza Inc. enters into a franchise agreement on November 1, 2015, giving Food Fight Corp. the right to operate as a franchisee of Tum’s Pizza for 5 years. Tum’s charges Food Fight an initial franchise fee of $50,000 for the right to operate as a franchisee. Of this amount, $20,000 is payable when Food Fight signs the agreement, and the balance is payable in five annual payments of $6,000 each on December 31. Food Fight also promises to pay ongoing royalty payments of 1% of its annual sales (payable each January 31 of the following year) and is obliged to purchase products from Tum’s at its current standalone selling prices at the time of purchase. The credit rating of Food Fight indicates that money can be borrowed at 8%. The present value of an ordinary annuity of five annual receipts of $6,000 each discounted at 8% is $23,957. The discount of $6,043 represents the interest revenue to be accrued by Tum’s over the payment period.

LO 13

APPENDIX 18B

REVENUE RECOGNITION FOR FRANCHISES

Rights to the trade name, market area, and proprietary know-how for 5 years are not individually distinct.

• Each one is not sold separately and cannot be used with other goods or services that are readily available to the franchisee.
• Combined rights give rise to a single performance obligation.
• Tum’s satisfies performance obligation at point in time when Food Fight obtains control of the rights.

LO 13

Identify the performance obligations and the point in time when the performance obligations are satisfied and revenue is recognized.

APPENDIX 18B

REVENUE RECOGNITION FOR FRANCHISES

Training services and equipment are distinct because similar services and equipment are sold separately.

• Tum’s satisfies those performance obligations when it transfers the services and equipment to Food Fight.

Tum’s cannot recognize revenue for the royalty payments because it is not reasonably assured to be entitled to those royalty amounts.

• Tum’s recognizes revenue for the royalties when (or as) the uncertainty is resolved.

LO 13

Identify the performance obligations and the point in time when the performance obligations are satisfied and revenue is recognized.

APPENDIX 18B

REVENUE RECOGNITION FOR FRANCHISES

REVENUE RECOGNITION FOR FRANCHISES

Consider the following for allocation of the transaction price at December 31, 2015.

LO 13

Training is completed in January 2016, the equipment is installed in January 2016, and Food Fight holds a grand opening on February 2, 2016.

APPENDIX 18B

On December 31, 2015, Tum’s signs the agreement and receives upfront payment and note.

Cash 20,000

Notes Receivable 30,000

Discount on Notes Receivable 6,043

Unearned Franchise Revenue 20,000

Unearned Service Revenue (training) 9,957

Unearned Sales Revenue (equipment) 14,000

REVENUE RECOGNITION FOR FRANCHISES

LO 13

APPENDIX 18B

On February 2, 2016, franchise opens. Tum’s satisfies the performance obligations related to the franchise rights, training, and equipment.

Unearned Franchise Revenue 20,000

Franchise Revenue 20,000

Unearned Service Revenue (training) 9,957

Service Revenue (training) 9,957

Unearned Sales Revenue (equipment) 14,000

Sales Revenue 14,000

Cost of Goods Sold 10,000

Inventory 10,000

REVENUE RECOGNITION FOR FRANCHISES

LO 13

APPENDIX 18B

RECOGNITION OF FRANCHISE RIGHTS REVENUE OVER TIME

Depending on the economic substance of the rights, the franchisor may be providing access to the right rather than transferring control of the franchise rights.

In this case, the franchise revenue is recognized over time, rather than at a point in time.

REVENUE RECOGNITION FOR FRANCHISES

LO 13

APPENDIX 18B

Facts: Tech Solvers Corp. is a franchisor and provides a range of computing services (hardware/software installation, repairs, data backup, device syncing, and network solutions) on popular Apple and PC devices. Each franchise agreement gives a franchisee the right to open a Tech Solvers store and sell Tech Solvers’ products and services in the area for 5 years. Under the contract, Tech Solvers also provides the franchisee with a number of services to support and enhance the franchise brand, including

1. advising and consulting on the operations of the store;
2. communicating new hardware and software developments, and service techniques;
3. providing business and training manuals; and
4. advertising programs and training.

FRANCHISE REVENUE OVER TIME

LO 13

APPENDIX 18B

Facts: As an almost entirely service operation (all parts and other supplies are purchased as needed by customers), Tech Solvers provides few upfront services to franchisees. Instead, the franchisee recruits service technicians, who are given Tech Solvers’ training materials (online manuals and tutorials), which are updated for technology changes, on a monthly basis at a minimum. Tech Solvers enters into a franchise agreement on December 15, 2015, giving a franchisee the rights to operate a Tech Solvers franchise in eastern Bavaria for 5 years. Tech Solvers charges an initial franchise fee of €5,000 for the right to operate as a franchisee, payable upon signing the contract. Tech Solvers also receives ongoing royalty payments of 7% of the franchisee’s annual sales (payable each January 15 of the following year).

LO 13

FRANCHISE REVENUE OVER TIME

APPENDIX 18B

Rights to the trade name, market area, and proprietary know-how for 5 years are not individually distinct.

• Each one is not sold separately and cannot be used with other goods or services that are readily available to the franchisee.
• Licensed rights and the ongoing training materials are a single performance obligation.
• Tech Solvers is providing access to the rights and must continue (over time) to perform updates and services.

LO 13

Identify the performance obligations and the point in time when the performance obligations are satisfied and revenue is recognized.

FRANCHISE REVENUE OVER TIME

APPENDIX 18B

Tech Solvers cannot recognize revenue for the royalty payments

• Not reasonably assured to be entitled to those revenue-based royalty amounts.
• Payments represent variable consideration.
• Recognize revenue for royalties when (or as) uncertainty is resolved.

LO 13

Identify the performance obligations and the point in time when the performance obligations are satisfied and revenue is recognized.

FRANCHISE REVENUE OVER TIME

APPENDIX 18B

Franchise agreement signed and receipt of upfront payment and note, December 15, 2015:

Cash 5,000

Unearned Franchise Revenue 5,000

LO 13

Unearned Franchise Revenue 1,000

Franchise Revenue (€5,000 ÷ 5) 1,000

Accounts Receivable 5,950

Franchise Revenue (€85,000 x 7%) 5,950

Franchise begins operations in January 2016 and records €85,000 of revenue for the year ended December 31, 2016.

FRANCHISE REVENUE OVER TIME

APPENDIX 18B

Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.

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Dwi Martani - 081318227080

martani@ui.ac.id atau dwimartani@yahoo.com

http://staff.blog.ui.ac.id/martani/

TERIMA KASIH

JENIS EPC

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Tahapan dalam Pengakuan

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Dwi Martani - 081318227080

martani@ui.ac.id atau dwimartani@yahoo.com

http://staff.blog.ui.ac.id/martani/

TERIMA KASIH