Stirling Case Analysis Pointers
Issue:
* issue of revenue recognition. Homex was recognizing revenue from its modular units prior to the date on which an actual sale had taken place * allocation of profit between divisions, the capitalization of expenses, and the meaning of 'working capital ' in a specific setting
Case Facts
Stirling Homex 's customers consisted primarily of public housing authorities who looked to Federal government housing programs as sources of financing for their proposed projects. The programs involved were low rent housing programs under the turnkey program of the Department of Housing and Urban Development ("HUD") and a subsidized housing program under Section 236 of the National Housing, Act administered by the Federal Housing Administration ("FHA;~).
Stirling Homex accounted for its sales by separating the manufacturing and installation functions and by recording sales and income on the manufacturing aspect of the transaction upon the supposed assignment of manufactured units to the requirements of a particular housing agency customer. This was supported by a commitment of funding which was supposedly evidenced by receipt of a letter of designation, feasibility letter or other similar document from the local agency. Stirling Homex treated the letters or other documents from the local agenCI.e S as the equivalent of a financing commitment, and PMM accepted this concept.
Stirling Homex set forth its rationale for the allocation of the total contract price between the module manufacturing phase and the installation phase and represented that no sales were recognized with respect to module manufacturing unless the five conditions were met.
Turnkey program
-Under this program a developer entered into a contract with a local housing authority to construct a project. The developer then sold the project (or "turned the key" over) to the housing authority at the stipulated price.
- The turnkey method involves the advertisement and selection of a
* issue of revenue recognition. Homex was recognizing revenue from its modular units prior to the date on which an actual sale had taken place * allocation of profit between divisions, the capitalization of expenses, and the meaning of 'working capital ' in a specific setting
Case Facts
Stirling Homex 's customers consisted primarily of public housing authorities who looked to Federal government housing programs as sources of financing for their proposed projects. The programs involved were low rent housing programs under the turnkey program of the Department of Housing and Urban Development ("HUD") and a subsidized housing program under Section 236 of the National Housing, Act administered by the Federal Housing Administration ("FHA;~).
Stirling Homex accounted for its sales by separating the manufacturing and installation functions and by recording sales and income on the manufacturing aspect of the transaction upon the supposed assignment of manufactured units to the requirements of a particular housing agency customer. This was supported by a commitment of funding which was supposedly evidenced by receipt of a letter of designation, feasibility letter or other similar document from the local agency. Stirling Homex treated the letters or other documents from the local agenCI.e S as the equivalent of a financing commitment, and PMM accepted this concept.
Stirling Homex set forth its rationale for the allocation of the total contract price between the module manufacturing phase and the installation phase and represented that no sales were recognized with respect to module manufacturing unless the five conditions were met.
Turnkey program
-Under this program a developer entered into a contract with a local housing authority to construct a project. The developer then sold the project (or "turned the key" over) to the housing authority at the stipulated price.
- The turnkey method involves the advertisement and selection of a