franchise agreement Flashcards
franchise agreement
initial franchise fee is recognized as revenue by franchiser only upon substantial performance of their initial service obligation
franchise agreement costs
are deferred until the related revenue is recognized
real estate transactions
profits may be recognized in full, provided the profit is determinable and the earnings process is virtually complete. Also the following must be met to recognize profit in full:
sale is consummated
the buyer’s initial and continuing investments are adequate to demonstrate a commitment to pay for the property
the sellers receivable is not subject to future subordination
the seller has transferred to the buyer the usual risks and rewards of ownership and does not have a substantial continuing involvement in the property.
real estate transactions if profit can’t be recognized in full
if profit is not recognized in full real estate transactions use any of the following methods:
deposit cost recovery installment reduced profit percentage of completion full accrual
deposit method
payment received are a liability until contract is cancelled or a sale is achieved
reduced profit method
seller recognizes a portion of profit at the time of sale with the remaining portion recognized in future periods.
profit recognized: calculate pv of receivable and apply a formula.
the reduced profit recognized: is gross profit - pv of receivables remaining profit recognized in future periods
multiple delivery revenue arrangements
if entity has revenue generating activities to provide multiple products or services at different times. if there are separate units the revenue arrangement is divided into separate units based on the relative selling prices. revenue recognition are then applied to each of the separate units.
a separate unit item is
the delivery item has value on a stand-alone basis (can be sold separately)
if the arrangement includes a right of return for the delivered item, the undelivered item must be substantially in control of the vendor.
milestone method
is used for research and development in which revenue to the vendor is contingent on achieving one or more substantive milestones related to deliverables or units of accounting.
substantive milestone is
an uncertain event that can only be achieved based on the vendor’s performance.
the revenue may be recognized in the period in which the milestone is achieved.
a description should be made in the notes to financial statements.
software revenue recognition
long-term construction type contracts
software revenue recognition
software products that are included with tangible products (hardware) and are required for the product’s functionality are excluded from these software revenue recognition rules.
software revenue recognition
software products that do not require significant production, modification, customization should recognize revenue when all the following are met:
evidence of arrangement exist
delivery has occurred
vendor’s fees are fixed or determinable
collectability is probable
software revenue recognition
delivery of an element is considered not to have occurred if other elements essential to the functionality of it are not delivered. no portion of elements meets criterion of collectability if the portion of the fee allocable to delivered elements is subject to refund.
software revenue recognition
arrangements that include multiple elements should allocate the fee to the elements based on vendor-specific objective evidence of fair value, regardless of stated prices in a contract.
