4.16 Sales of Future Revenues
ASC 470-10
Sales of Future Revenues or Various Other Measures of Income
25-1 An entity receives cash from an investor and agrees to pay to the investor for a defined period a specified percentage or amount of the revenue or of a measure of income (for example, gross margin, operating income, or pretax income) of a particular product line, business segment, trademark, patent, or contractual right. It is assumed that immediate income recognition is not appropriate due to the facts and circumstances. The payment to the investor and the future revenue or income on which the payment is based may be denominated in a foreign currency.
ASC 470-10 requires that the proceeds received
from an investor be classified as either deferred income or debt depending on the facts and
circumstances. Specifically, ASC 470-10-25-2 states that there is a rebuttable presumption
that the proceeds should be classified as debt if any of the following factors are
present:
If an entity concludes that proceeds received from the sale of future revenues should be classified as debt, it should account for the foreign currency effects in the same manner as that described in Section 4.5. If an entity concludes that proceeds received from the sale of future revenues should be classified as deferred income, it should account for the foreign currency effects in the same manner as contract liabilities, which are discussed in Section 4.8.