Coconut Telegraph

1149 Words May 9th, 2015 5 Pages
James Huang
Professor Kunkel
November 9, 2014
Individual Case Study
1. Yes, the agreement on February 1, 2012 is within the scope of ASC 985-605. Example 9 in section 985-605, 55-180 is similar to the case. According to 985-605, 55-182, the revenue for PCS would be “deferred and recognized in income over the one-year post-contract customer support service period” assuming the “lack of vendor-specific objective evidence of the fair value of the delivered software element.” In reference to the example, the PCS should be accounted monthly over the 12-month period. There is no “vendor-specific objective” because the product and the service are not sold separately.
2. The items should be accounted separately. In example 4, section 605-10,
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The contract from February 1, 2012 and May 1, 2012 should be accounted together. According to ASC 985-605-55-4, “any of the following factors may indicate that a group of contracts should be accounted for as a single multiple-element arrangement: a. The contracts or agreements are negotiated or executed within a short timeframe of each other. B. The different elements are closely interrelated or interdependent in terms of design, technology, or function.” It is evident that the second contract is an extension of the first contract. It satisfies the first factor in which the training of the system is given within the same timeframe of the first year of PCS. It satisfies the second condition also. Without the first contract, the second contract would not exist. The second contract provides training based on the Volcano System

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