Velocity Cellular Case Study
1- a. According to ASC 605-25-25-5 , a delivered item in an arrangement with multiple deliverables shall be considered a separate unit of accounting if the following criteria are met:
* The delivered item or items have value to the customer on a standalone basis, which is satisfied in this case. * When vendor-specific objective evidence or third-party evidence of selling price for deliverables is absent, the vendor is allowed to give an objective estimation of the price of deliverable unit on standalone basis (in accordance with ASU No.2009-13), which is generally satisfiable. * If the arrangement includes a general right of return relative to the delivered item, where the delivery or
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Additionally, both of the following conditions shall be met: The services are not essential to the functionality of any other element of the transaction, and the services are described in the contract such that the total price of the arrangement would be expected to vary as the result of the inclusion or exclusion of the services.
Also the deliverables in this case do meet the general separation criteria under FASB ASC 605-25-25-5. This is because the software does have a standalone value to the customer, and there is an objective and reliable evidence of fair market value for the installation, and there is no reference or evidence that a general right of return granted by the supplier. Therefore we can consider the units in this arrangements as separate entities and use the relative selling price method to account for them.
250,000 + 5,000 + 57,500 = 312,500 total base . 250,000/312,500 = 80% of the actual price of the arrangement to be allocated to the software. 5,000/ 312,500 = 1.6% of the actual price of the arrangement to be allocated to the installation. 57,500/ 312,500 = 18.4% of the actual price of the arrangement to be allocated to the technical support. The relative price of the software would be $240,000, the relative price of the installation would be $4,800 and the
605-25-25-3, Revenue Recognition-Multiple Element Arrangements-Recognition; separated contract with the same entity, near or at the same time are considerate as a package.
iv. Arrangement considerations must be fixed or determinable and are to be allocated at the “inception of the arrangement to all deliverables on the basis of their relative selling price.”
Market shall not exceed the net realizable value b. Market shall not be less than net realizable value reduced by an allowance for an approximately normal profit margin. Net Realizable Value Estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal.
All goods purchased pass through a receiving department under the direction of the chief purchasing agent. The duties of the receiving department are to unpack, count, and inspect the goods. The quantity received is compared with the quantity shown on the receiving department’s copy of the purchase order. If there is no discrepancy, the purchase order is stamped “OK—Receiving Dept.” and forwarded to the accounts payable section of the accounting
A court will likely hold the contract in dispute, one which involves a mixture of both goods and services, as predominately
To determine these agreements should be accounted for separately or as a single arrangement, we would consider in ASC 605-25 Revenue Recognition to Multiple-elements agreements
In order to meet this condition, the identified benefit must be sufficiently separable from the recipient’s purchase of the vendor’s products such that the vendor could have entered into an exchange transaction with a party other than a purchaser of its products or services in order to receive that benefit.
Trace items returned to the receiving report, taking note of quantity and date received (S‑4).
| 1) Shipment of products directly to individual 2) Direct delivery to retail outlets &retail establishments
The second requirement that needs to be fullled by the parties in the contract is the
3.1. The Seller and the Buyer both acknowledge the sufficiency of this consideration. In addition to the purchase price specified in this Agreement, the amount of any present or future sales, use, excise or similar tax applicable to the sale of the Goods will be paid by the Buyer, or alternatively, the Buyer will provide the Seller with tax exemption certificate acceptable to the applicable taxing authorities.
Abby Conroy was tasked with calculating an effective quote for Breeland Ltd., she chose the activity based accounting costing system since it more accurately captures the related costs. A special order was placed by Breeland Ltd. with Ace Fertilizer Company. The did not plan to order more of this product in the future. Based on Ace’s policy, the special order included disposal costs for any used materials in the event no other orders existed for the unused materials at the time the Breeland contract was signed. Abby correctly calculated the total direct material and labor costs and accurately arrived at the indirect costs using the ABC method and used cost activity pools that make sense for the company and
c) Special Legal Considerations would be another alternative for this issue. Inspection Rights, if a purchaser has not inspected the purchased material to ensure that it conforms to the terms of the contract, the law gives him or her a reasonable period of time to inspect the material after it is received. If the purchaser raises no objection to the material within a reasonable period of time, he or she is deemed to have accepted it.
For multi-element arrangements that include tangible products that contain software that is essential to the
SAB 104 lays down the following conditions that should all be fulfilled to enable revenue recognition in cases on non-delivery of goods: (1) The risks of ownership need to have been transferred to the purchasers, (2) The customers have made commitments, preferably written, to procure the goods, (3) The purchasers call for the ‘bill and hold’ transactions, (4) The buyers should be