Telecommunication, Real Estate, And Software Industries

1092 Words5 Pages
The updated revenue recognition standard is expected to greatly change the revenue recognition process for the telecommunication, real estate, and software industries. In this section, we will go through an example that illustrates the potential changes for each industry. 3.1 The telecommunication industry In the telecommunication industry, month-to-month contracts are frequent. In accordance with the update, these entities would need to treat each month as a separate contract “unless the renewal options provide the customer with a material right” (EY, 2015, p.6). This is the contract by contract basis. The standard does allow for a portfolio approach in which, similar contracts are grouped and treated together. Another issue in terms of…show more content…
currency) 60/month and a subsidized handset for which the customer pays CU 200. The handset has a stand-alone selling price of CU 600. For purposes of this illustration, the time value of money has not been considered, the stand-alone selling price of the wireless plan is assumed to be the same as the contractual price and the effect of the constraint on variable consideration is not considered. Consideration (CU) Standalone selling price (CU) Allocated transaction price (CU) Handset 200 600 482 Wireless Plan 1,440 1,440 1,158 Total Consideration 1,640 2,040 1,640 The allocated transaction price for the handset (CU 482) is recognized as revenue when the customer takes possession of the handset (at the time of sale). The CU 1,158 service revenue is recognized over the two-year contract term (or CU 48.25/month). A contract asset of CU 282 is established at the time the handset revenue is recognized, representing the difference between the revenue recognized and the cash received. This asset is reduced each month by the portion of the monthly service fee that was allocated to the handset (CU 11.75). • Scenario 1 (decrease their data service plan) On 1 July 20X1, the customer downgrades his wireless data plan from 2GB to the 1GB data plan for the remaining term of the contract (18 months). The 1GB plan is priced at CU 50/month, which is
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