Question

what should income be recognised ?

Answer 1

‌ASC 605, Revenue Recognition, provides guidance for transaction-specific revenue recognition and certain matters related to revenue-generating activities, such as the sale of products, the rendering of services, and the gain or loss on involuntary conversions of nonmonetary assets to monetary assets, that are not addressed specifically in other Topics. The Topic also provides industry-specific guidance for entities in the software industry, entities that enter into construction-type or production-type contracts, and entities in the entertainment and financial services industries, among others. Revenue is recognized when it is realized or realizable and earned. In addition, the Topic provides guidance for (1) arrangements under which a vendor will provide multiple deliverables to a customer, (2) reporting revenue gross or net of certain amounts paid to others, (3) accounting for consideration given by a vendor to a customer, and (4) the use of the milestone method in arrangements that include research or development deliverables.

Related resources

See our comprehensive collection of news and publications related to revenue recognition as well as our project page detailing the progress of the FASB/IASB joint revenue project.

International guidance

For the IASB's guidance on revenue recognition, see IFRS 15, Revenue from Contracts with Customers.

Overview

The full text of ASC 605 can be found in the FASB Accounting Standards Codification (link to the FASB's Web site; registration required). Also, the full text of the Codification and Deloitte-authored Q&As related to the Codification are available in the Deloitte Accounting Research Tool (DART) Web site (subscription required).

ASC 605 comprises the following ten Subtopics:

Overall Products Services Multiple-Element Arrangements Milestone Method Rights to Use Construction-Type and Production-Type Contracts Gains and Losses Principal Agent Considerations Customer Payments and Incentives

Below is an overview of each Subtopic.

‌605-10 Overall

ASC 605-10 provides guidance on revenue and gains, as well as the installment and cost recovery methods of revenue recognition.

‌605-15 Products

ASC 605-15 notes the following:

The buyer has a right to return the product. The product sold is subsequently repurchased subject to an operating lease.

605-20 Services

ASC 605-20 notes the following:

This Subtopic specifies the accounting for revenue from service arrangements not addressed elsewhere in the Codification, including the following:

Separately priced extended warranty and product maintenance contracts Commissions from certain experience-rated or retrospective insurance arrangements Certain loan guarantee fees In-transit freight service Advertising barter transactions.

605-25 Multiple-Element Arrangements

ASC 605-25 notes the following

This Subtopic addresses some aspects of the accounting by a vendor for arrangements under which it will perform multiple revenue-generating activities. Specifically, this Subtopic addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting, and how arrangement consideration shall be measured and allocated to the separate units of accounting in the arrangement.

‌605-28 Milestone Method

ASC 605-28 notes that it "specifies the accounting for research or development deliverables or units of accounting that include milestones that are accounted for under the milestone method of revenue recognition."

‌605-30 Rights to Use

ASC 605-30 notes that it only contains links to other guidance on rights to use, which are transactions "in which one entity conveys the right to use an asset (and generate revenue from using that asset) to another entity in return for payment."

‌605-35 Construction-Type and Production-Type Contracts

ASC 605-35 notes that it "provides guidance on the accounting for the performance of contracts for which specifications are provided by the customer for the construction of facilities or the production of goods or for the provision of related services."

‌605-40 Gains and Losses

ASC 605-40 notes that it "clarifies the accounting for involuntary conversions of nonmonetary assets (such as property or equipment) to monetary assets (such as insurance proceeds). Examples of such conversions are total or partial destruction or theft of insured nonmonetary assets and the condemnation of property in eminent domain proceedings." It further notes that although ASC 605-40 "provides specific guidance for gains and losses resulting from involuntary conversions, the majority of other guidance for gains and losses is included in the Derecognition Section of the relevant asset or liability Topic."

‌605-45 Principal Agent Considerations

ASC 605-40 notes that it "provides guidance as to whether an entity should report revenue gross or net of certain amounts paid to others. The reporting depends on whether the entity functions as principal or agent."

‌605-50 Customer Payments and Incentives

ASC 605-50 notes the following:

A vendor's accounting for consideration given by a vendor to a customer (including both a reseller of the vendor’s products and an entity that purchases the vendor’s products from a reseller). Such consideration (including sales incentives) offered by a vendor on either a limited or a continuous basis to a customer may take various forms including discounts, coupons, rebates, and free products or services. Accounting by a customer (including a reseller) for certain consideration received from a vendor. A service provider's accounting for consideration given by the service provider to a manufacturer or reseller of equipment