Question

Contract Language:

1. Service Provider will fund certain improvements to Client’s premises in order to facilitate the performance of Services (collectively, the Investments). The scope and specifications for such Investments shall be mutually agreed in writing by the parties prior to the disbursement of any Investments funds. Client shall hold title to real estate fixtures, equipment, and other items funded by the Investments. The Investments shall not exceed, in aggregate, One Hundred Forty Thousand Dollars ($140,000). The Investments shall be internally amortized over five (5) years from the Effective Date, calculated at a rate equal to a straight-line depreciation basis. If the Agreement or the location(s) where the Investments funds are allocated closes or is terminated, then CBRE and/or Client is liable for and promises to pay to Service Provider within thirty (30) days of the termination notice date, the unamortized portion of the Investments.

1. Based on the definitions above, is this a service or non-service asset?
2. Based on the definitions above, what type of commitment is this if this is a client contract? CFA, Intangible, Prepaid Discount?

Definitions:

• Service Asset: Investment for tangible assets used to deliver service. Not dependent upon CGUSA retaining title. Payments can be made directly to a vendor or to a client to pay the vendor.
• Non-Service Asset: Tangible Assets not used to deliver service

• Cash Payment: Payments to client with no restrictions on how the client must spend.
• Contract Fulfillment Asset: An Investment in the client in the form of payment for an asset that is used in fulfilling Compass’ performance obligation that does not meet the definition of PP&E
• Intangible: This is a signing bonus/non-service investment in the client relationship, which is in substance the cost of acquiring the right to generate profit from consumers
• Prepaid Discount: This is a signing bonus/non-service investment in the client relationship, which is not paid to acquire the right to generate profit from consumers

Answer 1

I) This is a Service Asset.

Definition:

Service Asset: Investment for tangible assets used to deliver service. Not dependent upon CGUSA retaining title. Payments can be made directly to a vendor or to a client to pay the vendor.

Explanation:

According to this definition, any investment to be called as a service asset, it must satisfy the following 3 conditions.

1. It must be a tangible asset used to provide service

2.Not depending upon CGUSA Retaining title

3.Payment either directly to vendor or to the client to pay the Vendor.

Analysis:

Tangible: The investment made here in the form of real estate fixtures, equipment which can be seen and touch , so satisfying the definition of tangible asset.and the same (equipment and fixtures) is used to facilitate or to provide service to customers

Retaining policy: There is a clear mention that the client will have the title to asset, it is said it is not dependent upon CGUSA retaining title.

Payment method: there is no specific mention it is assumed that the service provider has made payment to the client directly.

Conclusion: Since it satisfies the definition it is concluded that this is a Service Asset.

II)Contract Fulfillment Asset:

Definition:

Contract Fulfillment Asset: An Investment in the client in the form of payment for an asset that is used in fulfilling Compass’ performance obligation that does not meet the definition of PP&E