Lighthouse Case 4-7

In: Business and Management

Submitted By jgoldman2590
Words 300
Pages 2
Case Study – 2
LightHouse

How should revenue be recognized for sales of both the ship finder devices and service?
EITF 00-21 states “that in arrangements for multiple deliverables, the delivered item(s) should be considered a separate unit of accounting if all of the following criteria are met:
The delivered item(s) has value to the customer on a standalone basis (i.e., it is sold separately by any vendor or the customer could resell the deliverable on a standalone basis)
There is objective and reliable evidence of the fair value of the undelivered item(s)
If the arrangement includes a general right of return, delivery or performance of the undelivered item(s) is considered probable and substantially in the control of the vendor”.
In this case it says that lighthouse devices are made to be exclusively with the light house services and there are no other competitors making devices that work with the Lighthouse services. Therefore even if the customer cancels the service at any time the device does not have value to the customer on a stand alone basis therefore revenue can not be recognized by the arrangement with multiple deliverables.
According to SAB no, 104 to recognize revenue “Persuasive evidence of an arrangement exists, Delivery has occurred or services have been rendered, the seller's price to the buyer is fixed or determinable and Collectability is reasonably assured”. So the revenue for the Ship Finder Device can be recognized after the completion of the installation and after the final acceptance by the customer. The revenue for Ship Finder Service should be recognized after the service has been provided and the payment has been earned. The revenue for Ship Finder Service should be recognized 12 times a year. Because it’s earned once every month for the…...

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