Case 14 3 Essay examples

1462 Words Nov 15th, 2014 6 Pages
Hoang Thi Thanh Ha - 13200154

Case 14-3
Coconut Telegraph 1. Is Coconut’s February 1, 2012, arrangement with Buffett within the scope of ASC 985-605?
ASC 985 -605 Software — Revenue Recognition “provides guidance on when revenue should be recognized and in what amounts for licensing, selling, leasing, or otherwise marketing computer software.” It defines “ Software arrangements range from those that provide a license for a single software product to those that, in addition to the delivery of software or a software system, require significant production, modification, or customization of software.” (ASC 985-605-05-3 ). And the Scope and Scope exception is in ASC 985-605-15 (The Scope in 985-605-15-13 and Scope exception 986-605-15-14)
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Moreover, to the extent that a discount exists, the residual method described in paragraphs 985-605-25-10 through 25-11 attributes that discount entirely to the delivered elements.
So Arrangement with Buffett is a multiple elements arrangement. And at Feb 1st, 2012, The Fair Value of Customer Management system was $12,000 and One year of PCS was $2,000, while Buffett paid $12,000 to both. Coconut gave a discount in the multiple-element arrangement, to recognize revenues; we have to allocate the value of each element base on Fair value of it.
As February 1st 2012,

Fair Value
%
Allocated discount
Allocated arrangement consideration
System
$ 12,000
85.71%
(1,714)
$10,286
PCS
2,000
14.29%
(286)
1,714
Total
$ 14,000
100%
(2,000)
$12,000

As April 30th, 2012, Coconut would had
The cumulative revenues recognized :
+ Volcano Systems: $10,286
+ 2 months of PCS: $286 ( $1,714 X 2/12 = $286)
Total revenue recognized: $10,572
Deferred revenue: 10 months of PCS $1,428 ( $1,714-286=1,428)

3. Should the February 1, 2012, agreement and the May 1, 2012, agreement be accounted for separately or as a single arrangement?
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
As ASC 605-25-25-3 Units of Accounting In applying the guidance in this Subtopic, separate contracts with the same entity or related parties that are entered into at or near the same time are

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