Essay about Case 14 3

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Pages: 6

Hoang Thi Thanh Ha - 13200154

Case 14-3
Coconut Telegraph 1. Is Coconut’s February 1, 2012, arrangement with Buffett within the scope of ASC 985-605?
ASC 985 -605 Software — Revenue Recognition “provides guidance on when revenue should be recognized and in what amounts for licensing, selling, leasing, or otherwise marketing computer software.” It defines “ Software arrangements range from those that provide a license for a single software product to those that, in addition to the delivery of software or a software system, require significant production, modification, or customization of software.” (ASC 985-605-05-3 ). And the Scope and Scope exception is in ASC 985-605-15 (The Scope in 985-605-15-13 and Scope exception 986-605-15-14)
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That presumption may be overcome if there is sufficient evidence to the contrary.
ASC 605-25-30-4 To the extent that any separate unit of accounting in the arrangement is required by guidance included in another Topic to be recorded at fair value (and subsequently measured at fair value each reporting period thereafter), the amount allocated to that unit of accounting shall be its fair value.
Hence, the February 1, 2012, agreement and the May 1, 2012 agreement are two separately arrangements

4. On the basis of the response to Question 3, how should Coconut account for the execution of the May 1, 2012, agreement? Provide the deferred revenue balance and cumulative revenue recognized related to the Buffett arrangement upon execution of the May 1, 2012, agreement.
As the second agreement at May 1th, 2012,

Fair Value
Allocated discount
Allocated arrangement consideration
Training service
$ 3,000
$ 2,700
$ 5,000
$ 4,500

As May 1st, 2012, Coconut would had
The cumulative revenues recognized :
+ Volcano Systems: $10,286
+ 2 months of PCS: $286 ($1,714 X 2/12 = $286)
Total revenue recognized: $10,572
Deferred revenue:
+10 months of PCS of period contract: $1,428
+Training service: $2,700
+One year of PCS of second contract :$1,800
Total deferred revenue: $5,928

IFRS Addendum:
5. Identify the IFRS literature applicable to the Buffet arrangement and