Access the FASB Accounting Standards Codification at the FASB website ( asc.fasb
ID: 2448480 • Letter: A
Question
Access the FASB Accounting Standards Codification at the FASB website (asc.fasb.org).
Required:
Determine the specific citation for accounting for each of the following items:
What disclosures are required with respect to performance obligations that the seller is committed to satisfying but that are not yet satisfied?
What disclosures are required with respect to uncollectible accounts receivable, also called impairments of receivables?
What disclosures are required with respect to significant changes in contract assets and contract liabilities?
Explanation / Answer
Revenue Recognize
An entity would recognize revenue when (or as) it satisfies a performance obligation by transferring a promised good or service to a customer
If a performance obligation is not satisfied over time, an entity satisfies the performance obligation at a point in time. To determine the point in time when a customer obtains control of a promised asset and an entity satisfies a performance obligation, the entity would consider indicators of the transfer of control that include, but are not limited to, the following:
1. The entity has a present right to payment for the asset
2. The customer has legal title to the asset
3.The entity has transferred physical possession of the asset
4.The customer has the significant risks and rewards of ownership of the asset
5.The customer has accepted the asset
In addition, the proposed guidance includes implementation guidance on specified topics (for example, repurchase agreements, consignment arrangements, and bill and hold arrangements) to help an entity determine when control of a promised good or service is transferred to a customer.
Losses from Uncollectible Receivables
The inability to make a reasonable estimate of the amount of loss from uncollectible receivables (that is, failure to satisfy the condition in paragraph 450-20-25-2(b)) precludes accrual and may,
if there is significant uncertainty as to collection, suggest that the instalment method, the cost recovery method, or some other method of revenue recognition be used.
Except for credit card receivables, an entity shall disclose its policy for charging off uncollectible trade accounts receivable that have both of the following characteristics:
a. They have a contractual maturity of one year or less
b. They arose from the sale of goods or services
To disaggregate the information required by items (g) and (h) in the preceding paragraph on the basis of the impairment methodology, an entity shall separately disclose the following amounts:
a. Amounts collectively evaluated for impairment (determined under Subtopic 450-20)
b. Amounts individually evaluated for impairment (determined under Section 310-10-35)
c. Amounts related to loans acquired with deteriorated credit quality (determined under Subtopic 310-30)
Those disclosures shall be provided for impaired loans that have been charged off partially. Those disclosures cannot be provided for loans that have been charged off fully because both the recorded investment and the allowance for credit losses will equal zero.
Significant change in Contract Liability and Contract Assets
Meaning of Contract liability
An entity ’s obligation to transfer goods or services to a customer for which the entity has received consideration from the customer.
For users to assess the nature, amount, timing ,and uncertainty of revenue and cash flows arising from an entity ’s contracts with customers, they need to understand the relationship between the
revenue recognized in a reporting period and changes in the balances of the entity ’s contract assets and contract liabilities. Among other things, this includes identifying whether the entity typically receives payment before or after transferring goods or services to the customer and quantifying the relationship between revenue recognized and cash flows. Although entities currently recognize working capital balances at each reporting date, such as trade receivables and deferred revenue, users have indicated that the relationship between those balances and the revenue recognized in the period is unclear. Therefore, to clarify that relationship, the Boards proposed in the 2010 proposed Update that an entity should disclose a reconciliation of the contract asset and contract liability balances.
in light of the feedback received from some preparers, the Boards considered whether to require an entity to disclose the reconciliation only if specified criteria are met. For instance, those criteria might include the following
:
(a)The contract meets specified attributes (for example, it is a long-term contract or the entity operates in a particular industry)
(b) The contract assets or contract liabilities are classified as noncurrent assets or liabilities in the statement of financial position.