Hemo Tech free essay sample

This case gives students an opportunity to determine the appropriate accounting for multiple-element revenue transactions under US GAAP and to explore the sources of IFRS s guidance for multiple element revenue transactions, specifically related to the identification of deliverables and the determination of selling price. Part I Applicable Professional Pronouncements ASC 450, Contingencies (ASC 450) ASC 605 -10 -S99, Revenue Recognition: Overall: SEC Material (ASC 605 10 S99) (formerly SEC Staff Accounting Bulletin Topic 13. A. 3(c), Question 2, â€Å"What factors should be considered in the evaluation of whether a remaining obligation related to a unit of accounting is inconsequential or perfunctory? † (Quest ion 2 of SAB Topic 13. A. 3(c)) ) ASC 605 -20, Revenue Recognition: Services (ASC 605 20) ASC 605 -25, Revenue Recognition: Multiple-Element Arrangements (ASC 605 -25) (as updated by ASU 2009 13, Multiple-Deliverable Revenue Arrangements (ASU 2009-13)) ASC 926, Entertainment —Films (ASC 926) ASC 985-605, Software: Revenue Recognition (ASC 985 -605) ASC 985-605-15 -3(d), Software: Revenue Recognition (ASC 985-605-15-3(d)) ASC 985-605-55-82 through 55-85 Software: Revenue Recognition (ASC 985-605-55-82 through 55-85) Discussion Hemo-Tech Inc. We will write a custom essay sample on Hemo Tech or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page (â€Å"Hemo†) identified the five units of equipment, 50 boxes of equipment supplies, installation, one-year monitor and test services, and three-year screen and report services as deliverables in the arrangement. Has Hemo identified all the potential deliverables in the arrangement? If not, what are the other potential deliverables? Explain how you determined whether an item is a deliverable. Solution Outline A) Hemo has not identified all the potential deliverables in the arrangement. Although the accounting literature does not define what a deliverable is, entities may consider the following in identifying potential deliverable, which is not an all-inclusive list of factors that could be considered: LIST AT LEAST 6 FROM THE LITERATURE B) The following are the items in the arrangement that are potential deliverable (in addition to those identifies by Hemo) and the alternative views for each potential deliverable. Exclusivity (first paragraph of term sheet): Hemo agreed to provide products and services on an exclusive basis to the customer within Region for a period of five years. View A – Deliverable View B Not a deliverable Discount on Supplies (Article 1. 2): The customer may purchase additional boxes at a discount of 33 percent off the list price for a period of three years. What does the literature say? Is the discount a deliverable? What are the other deliverables, or not-deliverables? Duplicate Screen and Report Results (Article 1. 4): Hemo will maintain a duplicate copy of the screening results for a period of one year after screening. View A – Deliverable View B – Not a Deliverable Replace Digital Monitors (Article 3. 2): Hemo will replace the digital monitors included in the equipment of and when improved technology is available for a period of five years. View A – Deliverable View B – Not a Deliverable Warranty (Article 4. 1) : Hemo warrants that the equipment will operate in all material respects in conformity with the specifications outlined in the product manual for a period of 1 years following installation etc†¦Ã¢â‚¬ ¦.. What does the accounting literature say about this? Safety Representation (Article 4. 2): View A – Deliverable: View B – Not a deliverable Part II Applicable Professional Pronouncements ASC 605- 25 Revenue Recognition: Multiple-Element Arrangements (ASC605 -25) (as updated by ASU 2009-13, Multiple-Deliverable Revenue Arrangements (ASU 2009 -13)) ASC 985-605, Software: Revenue Recognition (ASC 985-605) ASC 985-605-55-82 through 55-85, Software: Revenue Recognition (ASC 985-605-55-82 through 55-85) Discussion In order to allocate arrangement consideration to all the deliverables identified, Hemo needs to determine the selling price for each deliverable. Should Hemo use vendor-specific objective evidence (VSOE), third? -party evidence (TPE), or its best estimate of the selling price (ESP) to determine the selling price of the following deliverables: (1) equipment, (2) discount on future supplies, (3) screen and report services? SOLUTION: Equipment Selling price determined by ESP Calculation of selling price Discount on Future Supplies Selling Price determined by VSOE Calculation of selling price Screen and Report Services Selling Price determined by TPE Calculation of selling price Competitor X Pricing Competitor Y Pricing