Atletico Cicero Incorporated_case study
RR Atletico Oaklawn Analysis 1
Requirement 1:
What are the accounting issue(s) and the relevant components of the authoritative literature?
The case focuses on a sales agreement with multiple deliverables. The critical issue is determining whether there are separate units of accounting in the sales agreement. In other words, should the multiple deliverables be accounted for as one unit of accounting or as two or more separate units of accounting? Guidelines that assist with evaluating sales transactions that involve multiple deliverables can be found in subtopic 605-25, ‘‘Revenue Recognition—Multiple-Element
Arrangements,’’ in the Codification.
Requirement 2: What are the separate units of accounting in the sales agreement between AOI and
CMI? Use the authoritative literature to explain your answer.
As the explanation below illustrates, the multiple deliverables sold by AOI to CMI should be treated as two separate units of accounting (the assembly line system and its installation). FASB ASC 605-2525-5 presents specific criteria that must be met for the multiple deliverables in revenue-generating arrangements to be treated as separate units of accounting. The questions essentially posed by these criteria are the following:
1. Does the delivered item(s) have value to the customer on a standalone basis?
2. Does a general right of return exist for the delivered item(s) and, if so, is delivery or performance of the undelivered item(s) considered probable and substantially in the control of the vendor?
Question 1 above, ‘‘Do the delivered item(s) have standalone value?’’ needs to be considered as each item is delivered to the customer (provided there are still items to be delivered). The first deliverable consists of the mixer segment and the molding segment (mixer/molding segment deliverable). AOI must consider whether this deliverable has value to the customer on a standalone basis (absent the packaging segment and the installation services).
Requirement 1:
What are the accounting issue(s) and the relevant components of the authoritative literature?
The case focuses on a sales agreement with multiple deliverables. The critical issue is determining whether there are separate units of accounting in the sales agreement. In other words, should the multiple deliverables be accounted for as one unit of accounting or as two or more separate units of accounting? Guidelines that assist with evaluating sales transactions that involve multiple deliverables can be found in subtopic 605-25, ‘‘Revenue Recognition—Multiple-Element
Arrangements,’’ in the Codification.
Requirement 2: What are the separate units of accounting in the sales agreement between AOI and
CMI? Use the authoritative literature to explain your answer.
As the explanation below illustrates, the multiple deliverables sold by AOI to CMI should be treated as two separate units of accounting (the assembly line system and its installation). FASB ASC 605-2525-5 presents specific criteria that must be met for the multiple deliverables in revenue-generating arrangements to be treated as separate units of accounting. The questions essentially posed by these criteria are the following:
1. Does the delivered item(s) have value to the customer on a standalone basis?
2. Does a general right of return exist for the delivered item(s) and, if so, is delivery or performance of the undelivered item(s) considered probable and substantially in the control of the vendor?
Question 1 above, ‘‘Do the delivered item(s) have standalone value?’’ needs to be considered as each item is delivered to the customer (provided there are still items to be delivered). The first deliverable consists of the mixer segment and the molding segment (mixer/molding segment deliverable). AOI must consider whether this deliverable has value to the customer on a standalone basis (absent the packaging segment and the installation services).