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TABLE 1: EXAMPLES OF INDUSTRY-RELATED ISSUESThe impact of the new standard will be greater in industries due to the timing of their services or the nature of their products.Here are some industry-specific issues related to the new standardDefense and aerospace equipmentGeneral Dynamics disclosed that it nowrecognizes revenue for the manufactureofbusiness jet aircraftata single point inreporting entities use percentage ofcompletion accounting. The newstandard replaces all existing guidelinesand may significantly impact theacceleration of reported revenues.customer-as opposed to waiting for theeCash incentives can be separateperformance obligations vs. marketingincentives. Promises to provide goodsFord Motor Company disclosed that itnow reports revenue sooner forvehicles subject to a guaranteed resalevalue. The revenue is now recognizedomoseparate performance obligations.Tesla reported that cars leasedgenerally accounted for as salesrevenue rather than operating leasesMedia and entertainmentThe up-front or installation setup feecan now be capitalized and deferred.WarnerMedia expects to see deferralscontent (primarily its HBO segment)Currently this revenue is recognizedwhen acoess to the library is grantedevenueintellectual property such as brands, tradeprimarily for the Wamer Brothers segment.Microsoft disclosed the impact of thestandard on sales of Windows 10icensing and multiple-yearsubscriptions. The company is nowrecognizing revenue at the time of thecontract rather than overtheevaluated to determine if there aremultiple performance obligations. Theoutcome is dependent on customizationRevenue for certain time-basedficoutside evidence) that were previouslyDue to the complexity of the newrecognized over time may now berecognized at a point in time.standard, Apple is waiting until fiscal2019 to adopt the new standard sinceThe activities of the licensee ofsoftware may impact the timing of

Question

Pick one company example in TABLE 1 and provide a conjecture about why the company recognizes revenue in that manner per ASC 606.?

TABLE 1: EXAMPLES OF INDUSTRY-RELATED ISSUES
The impact of the new standard will be greater in industries due to the timing of their services or the nature of their products.
Here are some industry-specific issues related to the new standard
Defense and aerospace equipment
General Dynamics disclosed that it now
recognizes revenue for the manufacture
ofbusiness jet aircraftata single point in
reporting entities use percentage of
completion accounting. The new
standard replaces all existing guidelines
and may significantly impact the
acceleration of reported revenues.
customer-as opposed to waiting for thee
Cash incentives can be separate
performance obligations vs. marketing
incentives. Promises to provide goods
Ford Motor Company disclosed that it
now reports revenue sooner for
vehicles subject to a guaranteed resale
value. The revenue is now recognized
omo
separate performance obligations.
Tesla reported that cars leased
generally accounted for as sales
revenue rather than operating leases
Media and entertainment
The up-front or installation setup fee
can now be capitalized and deferred.
WarnerMedia expects to see deferrals
content (primarily its HBO segment)
Currently this revenue is recognized
when acoess to the library is granted
evenue
intellectual property such as brands, trade
primarily for the Wamer Brothers segment.
Microsoft disclosed the impact of the
standard on sales of Windows 10
icensing and multiple-year
subscriptions. The company is now
recognizing revenue at the time of the
contract rather than overthe
evaluated to determine if there are
multiple performance obligations. The
outcome is dependent on customization
Revenue for certain time-based
fic
outside evidence) that were previouslyDue to the complexity of the new
recognized over time may now be
recognized at a point in time.
standard, Apple is waiting until fiscal
2019 to adopt the new standard since
The activities of the licensee of
software may impact the timing of
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TABLE 1: EXAMPLES OF INDUSTRY-RELATED ISSUES The impact of the new standard will be greater in industries due to the timing of their services or the nature of their products. Here are some industry-specific issues related to the new standard Defense and aerospace equipment General Dynamics disclosed that it now recognizes revenue for the manufacture ofbusiness jet aircraftata single point in reporting entities use percentage of completion accounting. The new standard replaces all existing guidelines and may significantly impact the acceleration of reported revenues. customer-as opposed to waiting for thee Cash incentives can be separate performance obligations vs. marketing incentives. Promises to provide goods Ford Motor Company disclosed that it now reports revenue sooner for vehicles subject to a guaranteed resale value. The revenue is now recognized omo separate performance obligations. Tesla reported that cars leased generally accounted for as sales revenue rather than operating leases Media and entertainment The up-front or installation setup fee can now be capitalized and deferred. WarnerMedia expects to see deferrals content (primarily its HBO segment) Currently this revenue is recognized when acoess to the library is granted evenue intellectual property such as brands, trade primarily for the Wamer Brothers segment. Microsoft disclosed the impact of the standard on sales of Windows 10 icensing and multiple-year subscriptions. The company is now recognizing revenue at the time of the contract rather than overthe evaluated to determine if there are multiple performance obligations. The outcome is dependent on customization Revenue for certain time-based fic outside evidence) that were previouslyDue to the complexity of the new recognized over time may now be recognized at a point in time. standard, Apple is waiting until fiscal 2019 to adopt the new standard since The activities of the licensee of software may impact the timing of

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Step 1

ASC606 is the new guideline set up by IASB and FASB together to overcome the disparity in revenue recognition among the various companies in the same industry. This has led to the difficulty in comparing the financial statement of various companies by the investors and the third party.

Step 2

The new standard ASC606 aims at recognizing the revenue based on a 5 step model.

 

Ø  Identifying the contract.

Ø  Identifying the separate performance obligations in the contract.

Ø  Determining the transaction price.

Ø  Allocating the transaction price to separate performance obligations.

Ø  Recognising the revenue on the satisfaction of the performance obligation.

Step 3

Company R, is into the Aerospace and Defence industry, and faces the issue as it involves various complex programs. The new standard is replacing all the existing guidelines and impacts the acceleration of the reported revenue. Hence Company R, has adopted a full retrospective approach to reporting the impact of the new standard.

 

The transition method adopted by Company R is a full retrospective approach, where in the company is required to change all its financial statement and accounting procedure in accordance to the ASC606. Here the company is required to reconstruct the financial statements of the past 2 years at least, with reference to the A...

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