By Ndwyouell-Oracle on Apr 25, 2016
1. A software company ships a new game, but some missions or episodes are missing:
• Under today’s GAAP, they would defer all the revenue until the missing episodes were published.
• Under the new guidelines, they recognize revenue that relates to the delivery they performed, and postpone recognizing the remainder of the revenue until the delayed missions are delivered. A key question is how to identify and value a performance obligation of this nature, especially since this company doesn’t sell missions separately.
a. A cellular telephone sold under contract that includes automatic software upgrades for one year is considered a single performance obligation.
b. A phone with a list price of $600 is sold to a customer under a service contract for $200. The cell bandwidth revenue for that client must be recognized to include a “claw back” of the difference of the list and selling price of the device.
3. An auto dealer that includes maintenance services with the sale of a car can only recognize the service revenue once the owner of the car brings it in for maintenance.
How will the new revenue recognition guidelines affect my organization? Look at part 4 of this series, “What are the challenges for affected organizations?” to answer this question. Other articles in the New Revenue Recognition Guideline series can be reviewed by clicking the respective title:
Part four: What are the challenges for affected organizations?
Part five: What should I be doing?
Part six: How will Oracle’s experience help?