ASC 606 Case Study

On May 28, 2014, the Financial Accounting Standard Board and the International Accounting Standard Board issued ASC 606, Revenue From Contracts With Customers. The new standard will affect all entities including public, private, and not-for-profit that enter into contracts with customers that involve goods and services being transferred. It also effects contracts that transfers nonfinancial assets unless within the scope of other standards such as leases and insurance contracts. The main purpose of the standard is that involved party should recognize revenue that reflects the transfer of the good and services in an amount equivalent to they expect to receive in exchange for the goods and services. There are five steps to explain how the ASC 606 Standard works. The first step is to identify the contract with

There can be multiple performance obligations in one contract and both parties should be clear on all obligations. The third step is to determine the transaction price found in FASB ASC 606-10-32-2 through 32-27. The determined price should take into consideration the amount the entity expects to receive in return for the goods and services. Entities should consider multiple factors including variable consideration, constraining elements of variable consideration, the existence of a significant financing component, noncash considerations, and consideration payable to the customer. The fourth step is to allocate the transaction price to separate performance obligations found is FASB ASC 606-10-32-28 through 32-41. The revenue recognition standard requires entities to allocate transaction price to each performance obligation that also reflects the amount they expect to receive in return for the goods and services. The transaction price for separate performance transactions is allocated by first determining the stand alone price at inception of