Atletico Cicero Incorporated_case study Essay

2070 Words Oct 1st, 2013 9 Pages
RR Atletico Oaklawn Analysis 1
Requirement 1:

What are the accounting issue(s) and the relevant components of the authoritative literature?
The case focuses on a sales agreement with multiple deliverables. The critical issue is determining whether there are separate units of accounting in the sales agreement. In other words, should the multiple deliverables be accounted for as one unit of accounting or as two or more separate units of accounting? Guidelines that assist with evaluating sales transactions that involve multiple deliverables can be found in subtopic 605-25, ‘‘Revenue Recognition—Multiple-Element
Arrangements,’’ in the Codification.

Requirement 2: What are the separate units of accounting in the sales agreement
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Question 2, above, is not relevant and need not be considered because there is no general right of return provided by AOI in its agreement with CMI.

Requirement 3: How much of the arrangement consideration should be allocated to each unit of accounting? Be sure to identify any other issues that must be resolved to determine how revenue should be allocated.
AOI must now allocate the arrangement consideration between the two separate units of accounting.
As discussed in FASB ASC 605-25-30-2, arrangement consideration should be allocated using the relative selling price method. The case asks to ‘‘identify any other issues that must be resolved to determine how revenue should be allocated.’’ To apply the relative selling price method, AOI must determine whether it has vendor-specific objective evidence (VSOE) of selling price (as defined below) for either or both of the separate units of accounting. If AOI has VSOE of selling price for a unit of accounting, it should use that selling price in the relative selling price method. If AOI does not have VSOE of selling price for a unit of accounting, it should determine whether it has third party evidence (TPE) of selling price (as defined below). If AOI does not have VSOE of selling price, but does have TPE of selling price for a unit of accounting, then AOI should use TPE of selling price in the relative selling price method. If AOI has neither VSOE of selling

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