Revenue Recognition Milestone Method ASC 605-28 Highlights.
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Transcript of Revenue Recognition Milestone Method ASC 605-28 Highlights.
Revenue RecognitionMilestone Method
ASC 605-28Highlights
Overview
• This subtopic specifies accounting for research and development deliverables or
• units of accounting that include milestones that are accounted for under the milestone method of revenue recognition.
Scope
• Applies to all entities• Applies to transactions including R&D
deliverables or units of accounting – under which a vendor satisfies performance
obligations over a period of time and – when a portion or all of the consideration is
contingent upon uncertain future events,– except when the guidance in this subtopic
conflicts with guidance elsewhere in Topic 605.
• The guidance in this subtopic is not the only acceptable revenue attribution model for R&D deliverables consideration or unit of accounting consideration contingent upon achieving a milestone.
• A vendor shall apply policies for recognizing deliverable consideration consistently to similar deliverables or units of accounting.
• This subtopic does not address whether an arrangement comprises one or more deliverables or whether multiple deliverables meet the separation requirements (605-25).
Milestone defined
• An event having all of the following characteristics:– There is substantive uncertainty at the date of the
arrangement that the event will be achieved. – The event can be achieved, based in whole or in part,
on either• The vendor’s performance or• A specific outcome resulting from the vendor’s
performance.
– If achieved, the event would result in additional payments being due to the vendor.
Recognition
• Guidance in this subtopic shall be met in order for a vendor to recognize consideration for a deliverable or a unit of accounting – that is contingent upon achievement of a substantive
milestone in its entirety in the period in which the milestone is achieved.
• Even if the criteria in this subtopic are met, a vendor may elect to apply a different policy that results in deferral of revenue relating to some portion of the milestone consideration.
• A substantive milestone is a matter of judgment and must be determined only at the inception of the arrangement.
• To be considered substantive, a milestone must meet all of the following conditions:– It corresponds with the vendor’s performance to achieve the
milestone or the enhancement of the value of the delivered item as a result of the vendor’s performance.
– It relates solely to past performance.• No refund or adjustment based on future performance (penalty or
clawback).
– It is reasonable relative to all of the deliverables and payment terms.
Transition to Update 2010-17
• For years beginning on or after June 15, 2010, pending content is applied prospectively,– Unless the vendor elects to adopt on a
retrospective basis, with required disclosures.• Earlier application is permitted.