Question

a. Rory Inc. is a manufacturer of windows. Rory primarily sells to residential builders who take delivery of windows only when the house is at the stage at which the windows can be immediately installed. Consequently, builders will order the total number of windows in the various shape and size needed for an entire season. The builder will be invoiced as the order is completed and the windows put into a separate section of the warehouse and tagged with the customer name. But the windows will not be delivered until requested by the customer. The completed order is held in Rory's warehouse and shipped as the requests are received. Payment is made 60 days after the invoice date.

b.Heckiner Inc, manufacture customized equipment used in the paper packing industry, Customers can pick from a variety of "sections" to build a customized piece of machinery.It takes nine months to build these machines. However, even though the machines are"customized" they can be easily modified at any time during the production phase for another customer.since the section are standard and easily disassembled if required. The contract outlines which standard sections will be required and how they will be assembled for the final machine. the amount of consideration to be paid. and that the customer will take the title on delivering and inspection of the machinery. Payment is due after delivery and inspection.

c. Nevo Corp, develops customized software for clients related to inventory, management. Noro started with the customer specifications and then writes the software based on these requirements. it takes about 18 months to complete the project from concept and specifications through programming, debugging, and testing. Included in the contract are installation, on-site testing, training, and two year's upgrade and service9which certain milestone are achieved. A contract outlines the specification for the software, a project plan for installation, testing, training, upgrade and service agreements separately to the customer, but installation, testing, and training are not offered separately since these are customized to the specific customer's software.

For each situation, asset the five steps and determine when revenue is recognized and how costs and payment.

Answer 1

There are five steps that allow the recognition of revenue under that core principle:                   
                  
1. Identify the contract with the customer.                  
2.Identify the separate performance obligations in the contract                  
3. Determine the amount of consideration/price for the transaction                  
4. Allocate the determined amount of consideration/price to the contractual obligations                  
5. Recognize revenue when or as the performing party satisfies performance obligations                  
                  
Situation b,                   
The parties involved will be heckiner inc, manufacture of customized equipement and customer                  
                  
Step 1: identification of contract with customer                  
   1. payment terms are there: payout after delivery with proper inspection              
   2. product is customized and at any time the product can be re organised              
                  
                  
   Step 2: identify the separate performance obligtions in the contract                   
   there is no separate performance got identified              
     
                  
Step 3: Determination of amount of consideration                   
   amount of consideration will be paid on final machine delivered              
                  
                  
                  
Step 4: allocation of amount of cosideration to the contractutal obligation                  
   since the product is cusomized at any special request for the modification              
   those cost to be allocated as consideration              
                  
                  
Step 5: revenue recognition                  
   at the time of delivery of goods after inspection and transfer of title of goods              
   and utilize for their own purpose  

There are five steps that allow the recognition of revenue under that core principle:                                               
                                              
Situation c,                                               
The parties involved will be nevo corp, noro corp                                              
                                              
Step 1: identification of contract with customer                                              
   Nevo corp is a customized software                                          
   Noro corp provides software based on specification of customers and start building the software                     based on the specification                                          
                                              
   Step 2: identify the separate performance obligtions in the contract                                               
   Noro corp provides software based on specification of customers and start building the software                        based on the specification                                          
                                              
Step 3: Determination of amount of consideration                                               
   A contract outlines the specification for the software,                                          
   cost                                          
                                              
                                              
Step 4: allocation of amount of cosideration to the contractutal obligation                                              
   The cost involved on the below only to Noro corp not for Nevo since they are already customized and no separate allocation is required                                          
   a project plan for installation, testing, training, upgrade and service agreements separately to the customer,

Step 5: revenue recognition                                              
   at the time of delivery of software                                          
   and utilize for their own purpose