Question

Revenue recognition at a point in time or over time

Kleymenova Consulting, Inc., enters into a contract to provide consulting services

1. The consulting services are the provision of technical computer assistance as needed. For $25,000 per month, whenever the client has a problem, it contacts Kleymenova, which dispatches a consultant to address the problem at no additional charge.

2. The consulting services are to develop a new customer payment collection system for the client. The $300,000 contract price is payable in installments as certain benchmarks are reached. Because of the specialized nature of the software, there is no alternative use for the computer code. Its only use is for Kleymenova’s client.

3. The consulting services are to update and improve the client’s existing customer collection system. The $300,000 contract price is payable when certain benchmarks are reached, the client has signed off on an improved functionality promised under the contract, and the update has “gone live.”

4. Kleymenova is developing a generic customer payment collection system, which will be installed at the client’s facilities upon completion. The client paid $50,000 upon signing the contract and will pay the $250,000 balance of the contract price when installation is complete. Kleymenova will also be able to install essentially the same system on other clients’ computers.

Answer 1

Kleymenova Consulting, Inc.

Revenue from services will be recognized when the Service is rendered, sale price is determinable and collectability of revenue is reasonably assured. One can determine the problem as below:

Situation 1

The agreement is the nature of that a technical computer assistance will be provided to client on a fixed monthly basis on fixed monthly charges so in this case revenue is assured when the period of one month completed so kleymenova will recognize revenue at the end of each month with $25000.

Situation 2

The agreement to develop a new payment collection system for the client. The contract price is $ 300000 and payable in installments when benchmarks reached. In this situation the revenue will be assured to Kleymenova when the benchmark reached so in this case kleymenova should recognize the revenue from the contract when the certain benchmark reached and payment become payable to kleymenova, so revenue will be recognized on completion of every benchmark.

Situation 3

The agreement to update and improve the existing customer collection system of the client, contract price will be payable at when decided benchmarks reached but the client has signed off on an improved on an improved functionality promised under the contract this interprets that the agreement to update the system is accomplished and the contract amount is payable to kleymenova, so when the updates go live of new functionality and contract completed the kleymenova will recognize the revenue of $300000.

Situation 4

Kleymenova is developing a generic customer payment collection system, which will be installed at the client’s facilities upon completion and receives $50000 in advance from the client and balance $ 250000 will be payable when the installation will be completed by kleymenova . kleymenova has right to install same system to other clients too in this situation $ 50000 will be treated as advance until the system developed and installed at clients facilities after installation at client facilities the revenue of $300000 will be reasonably assure and will be accounted as revenue in kleymenova’s accounts.

So this tells us about how to recognize revenue in different situations.