Chapter 8 — Step 5: Determine When to Recognize Revenue | DART

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Chapter 8 — Step 5: Determine When to Recognize Revenue

8.1 Objective and Background

8.1.1 Concept of Control

8.1.2 Performance Obligations Satisfied Over Time or at a Point in Time

8.1.3 Distinguishing Between “Goods” and “Services”

8.2 Control

8.3 Two Models for Revenue Recognition — Based on Control

8.3.1 When Revenue Recognition Over Time Is Appropriate for Goods (e.g., Contract Manufacturing)

8.3.2 When Revenue Recognition Over Time Is Appropriate for Services (e.g., Construction)

8.3.3 Whether an Entity Is Free to Choose Whether to Recognize Revenue Over Time or at a Point in Time

8.3.4 Recognizing Revenue Over Time or at a Point in Time — Production of Customized Goods

8.4 Revenue Recognized Over Time

8.4.1 Meeting More Than One of the Criteria for Recognition of Revenue Over Time

8.4.2 Application of ASC 606-10-25-27 to Contracts With a Very Short Duration

8.4.3 Simultaneous Receipt and Consumption of Benefits of the Entity’s Performance

8.4.4 Customer Controls the Asset as It Is Created or Enhanced

8.4.5 Entity’s Performance Does Not Create an Asset With an Alternative Use, and the Entity Has an Enforceable Right to Payment

8.5 Measuring Progress for Revenue Recognized Over Time

8.5.1 Methods for Measuring Progress

8.5.2 Whether Control of a Good or Service Can Be Transferred at Discrete Points in Time When the Underlying Performance Obligation Is Satisfied Over Time

8.5.3 Use of a Multiple Attribution Approach (as Compared With a Single Method for Measuring Progress)

8.5.4 Use of Different Methods of Measuring Performance to Date to Determine Whether a Performance Obligation Is Satisfied Over Time and to Measure Progress Toward Satisfaction of That Performance Obligation

8.5.5 Application of the Method for Measuring Progress

8.5.6 Subsequent Measurement of an Entity’s Measure of Progress

8.5.7 Reasonable Measure of Progress

8.5.8 Output Methods

8.5.9 Input Methods

8.5.10 Measuring Progress — Stand-Ready Obligations

8.6 Revenue Recognized at a Point in Time

8.6.1 Impact of Governing Laws on the Determination of When the Control of Goods Is Transferred to a Customer

8.6.2 Timing of Revenue Recognition When a Right of Return Exists

8.6.3 Present Right to Payment for the Asset

8.6.4 Legal Title to the Asset

8.6.5 Transfer of Physical Possession of the Asset

8.6.6 Significant Risks and Rewards of Ownership

8.6.7 Customer Acceptance

8.6.8 Consignment Arrangements

8.6.9 Bill-and-Hold Arrangements

8.6.10 Shipping Terms

8.7 Repurchase Agreements

8.7.1 Forward or Call Option

8.7.2 Put Option

8.7.3 Residual Value Guarantees

8.7.4 Right of First Refusal and Right of First Offer in Connection With a Sale

8.8 Customers’ Unexercised Rights — Breakage

8.8.1 Accounting for Sales of Gift Certificates That May Not Be Redeemed

8.8.2 Changes in Expectation of Breakage After Initial Allocation of Revenue

8.9 Other Considerations in Step 5

8.9.1 Transfer of Control in Licensing Arrangements

8.9.2 Partially Satisfied Performance Obligations Before the Identification of a Contract

8.9.3 Trial Periods

8.9.4 Up-Front Fees

8.9.5 Recognizing Revenue Related to Commissions Earned by a Sales Agent

8.9.6 Government Vaccine Stockpile Programs

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This publication provides comprehensive guidance; however, it does not address all possible fact patterns, and the guidance is subject to change. Consult a Deloitte & Touche LLP professional regarding your specific issues and questions.