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Variable Consideration vs Optional Purchases

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Understand the key differences between variable consideration and customer options for additional goods or services under ASC 606.

SEC Commentary to Company Filings on ASC Topic 606

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This article explains what types of behavior with regards to implementing the new revenue recognition standard are receiving comments from the SEC.

Trending Topics

The Five-Step Method

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Input vs. Output Methods

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Revenue Recognition Over Time

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Presentation of Contract Assets and Contract Liabilities

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Standalone Selling Prices

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General Overview

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Implementing ASC 606

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Get practical answers for the most common questions on what to expect when implementing ASC 606's standards in your business.

Overview of ASC 606

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Collaboration between FASB and IASB resulted in ASC 606. Filers have choice between Full Retrospective and Modified Retrospective Adoption methods.

The Five-Step Method

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Summary of each of the five steps of ASC 606 and key issues entities need to consider when completing each step.

Transition Dates and Methods

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Stay up-to-date on an entity’s required ASC 606 transition date and its most beneficial transition method, which varies based on entity type and industry.

STEP 1 : CONTRACT

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Combining Contracts

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Analysis and examples of the criteria for determining if contracts entered into with a customer at or near the same time must be combined for revenue recognition.

Collectibility of Consideration

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Analysis of the collectability requirement of ASC 606, including accounting for contract's with initial and subsequent collectability issues.

Contract Modifications
Part I – Separate Contracts

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Analysis of changes in the price or scope of a contract and whether they qualify as modifications and should be treated as a separate, standalone contract.

Contract Modifications
Part II – Contract Modification Treatment

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If a contract modification is not considered a separate contract, entities use the Prospective Treatment method or Cumulative Catch-up Adjustment method.

STEP 2 : PERFORMANCE OBLIGATIONS

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Variable Consideration vs Optional Purchases

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Understand the key differences between variable consideration and customer options for additional goods or services under ASC 606.

Distinct Goods or Services: Case Studies

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Three extended examples demonstrating the analyses for determining if goods or services are (1) capable of being distinct and (2) separately identifiable.

Customer Options for Additional Goods or Services

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Analysis and examples of how ASC 606 treats future discounts given to customers in a current sale, including diversity in thought and comparison to ASC 605.

Distinct within the Context of the Contract

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Analysis and examples of the new criteria under ASC 606 for identifying separate performance obligations as "distinct within the context of the contract".

STEP 3 : TRANSACTION PRICE

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Consideration Payable to a Customer

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Analysis of ASC 606's treatment of payments paid to customers, including the payment types and the timing of recognizing a reduction in revenue.

Magnitude of the Constraint on Revenue

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Analysis and examples of ASC 606's requirement to constrain variable consideration based upon likelihood and magnitude, including diversity in thought.

Noncash Consideration

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Determine the transaction price of a contract with noncash consideration under ASC 606, including when and how to measure variable fair value.

Nonrefundable Upfront Fees

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Analysis of revenue recognition for nonrefundable upfront fees under ASC 606, including when fees relate to specific goods or services and material rights.

STEP 4 : ALLOCATE REVENUE

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Allocating Discounts

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Allocating variable and fixed discounts to the transaction price under ASC 606, includes significant changes from ASC 605 to ASC 606.

Allocating Variable Consideration

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Analysis and illustrative examples of the two criteria given in ASC 606 for allocating variable consideration to performance obligations.

Case Study: Estimating Standalone Selling Prices

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An extended example of applying the adjusted market assessment, expected cost plus margin, and residual approaches in estimating standalone selling prices.

Case Study: Transaction Price Allocation

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A comprehensive example of how transaction price is allocated to performance obligations, including cases involving variable considerations and discounts.

STEP 5 : RECOGNIZE REVENUE

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Measuring Progress with Multiple Goods or Services in a Single Performance Obligation

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Analysis of step five of ASC 606’s model when a single performance obligation has multiple non-distinct promises, including restrictions, principles, and examples.

Bill-and-Hold Arrangements

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ASC 606's four criteria for determining bill-and-hold arrangements and when these arrangements contains one or more performance obligations.

Case Study: Revenue Recognition Over Time for Products

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An extended example applying ASC 606's three criteria for recognizing revenue over time to goods and measuring revenue over time using inputs or outputs.

Consignment Arrangements

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Explanation and examples of the indicators that a consignment arrangement exists, including comparison to ASC 605.

CASE STUDIES »

Revenue Disaggregation Disclosures: Alphabet Case Study

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Take a look at how early adopter, Alphabet Inc., disclosed its disaggregation of revenue in its financials, and see what the SEC had to say about it.

Revenue Disaggregation Disclosures: Ford Case Study

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Take a look at how early adopter, Ford Motor Company, disclosed its disaggregation of revenue in its financials, and see what the SEC had to say about it.

Case Study: Price Concessions

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This case study explains how to identify price concessions and recognize revenue for transactions that contain a price concession.

Combining Desktop and Cloud Software: Hybrid Contracts

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Software no longer has industry-specific guidance. See how to recognize revenue for Cloud-Software hybrid contracts under ASC 606. Extended example included.

OTHER ISSUES »

SEC Commentary to Company Filings on ASC Topic 606

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This article explains what types of behavior with regards to implementing the new revenue recognition standard are receiving comments from the SEC.

PwC Revenue Recognition Survey and SAB 74 Disclosure Guidance

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Key findings of PwC's Revenue Recognition Survey and guidance on using this interactive tool. Expectations and best practices for SAB 74 Disclosures.

Licenses for Intellectual Property

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Description and examples of revenue recognition for licenses of intellectual property under ASC 606, including determining license nature and timing of recognition.

SEC Makes TRG Discussions Authoritative

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Statements made by Chief Accountant of the SEC imply a more authoritative role for the Revenue Recognition TRG; this may have unintended consequences.

INDUSTRY-SPECIFIC ISSUES »

Common ASC 606 Issues: Educational Not-for-profit Entities

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Implementing ASC 606 requires a substantial amount of time and expertise, with specific challenges rising in each industry. Gain a deeper understanding of the key issues that not-for-profit entities face as they transition to ASC 606.

Common ASC 606 Issues: Oil and Gas Entities

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Implementing ASC 606 requires a substantial amount of time and expertise, with specific challenges rising in each industry. Gain a deeper understanding of the key issues that oil and gas entities face as they transition to ASC 606.

Common ASC 606 Issues: Power and Utility Entities

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Implementing ASC 606 requires a substantial amount of time and expertise, with specific challenges rising in each industry. Gain a deeper understanding of the key issues that power and utility entities face as they transition to ASC 606.

Common ASC 606 Issues: Industrial Products & Manufacturing Industry

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Implementing ASC 606 requires a substantial amount of time and expertise, with specific challenges rising in each industry. Gain a deeper understanding of the key issues that manufacturing entities face as they transition to ASC 606.