In: Accounting
Assume the Schwartz Inc is a public company with a calendar year
end. Schwartz must determine when and how it will adopt the revised
revenue standard.
A. In what period must Schwartz firt apply ASC 606-10
B. How must the standard be initially applied (prospectively,
retrospectively)? Explain.
C. Could Schwartz early adopt if it chose to do so?
For public businesses, ASC 606-10 is applicable for all accounting period beginning after 15 December 2017. Considering that Schwartz follows calender year, ASC 606-10 will be applicable from the period beginning 1 January 2018, i.e. the financial year beginning immediately after 15 December 2017.
The change in standard, being an accounting policy change, the impact needs to be restrospective. The standard provides two options, i.e. full retrospective approach, i.e. restatement of reserves of the earliest comparative period, i.e. 1 January 2017, restatement of income statement for December 2017 and application of ASC 606-10 for the year 2018
Alternatively, the standard also provides an option for midified retrospective approach, wherein the reserves are directly adjusted as on 1 January 2018, without restating the income statement or 2017 and new standard being applied in 2018. This is a choice available with the entity.
Early adoption choice is available with public business entities, wherein the entities could choose to implement the standard one year before the mandatory application date, i.e. for financial periods beginning after 15 December 2016.