ASC 606 five-step model, lease classification and measurement, and related disclosures.
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- What are the five steps of the ASC 606 revenue recognition model?
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1. Identify the contract. 2. Identify performance obligations. 3. Determine transaction price. 4. Allocate price to performance obligations. 5. Recognize revenue when performance obligations are satisfied.- Define a performance obligation under ASC 606.
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A promise in a contract to transfer a distinct good or service to the customer.- What makes a good or service distinct under ASC 606?
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The customer can benefit from it either on its own or together with other readily available resources, and the promise is separately identifiable from other promises in the contract.- When should revenue be recognized at a point in time under ASC 606?
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When control of the good or service transfers to the customer at a single moment.- When should revenue be recognized over time under ASC 606?
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When the company creates an asset that has no alternative use and has an enforceable right to payment, or when a customer controls an asset as it is created.- What is variable consideration under ASC 606?
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Amounts in a contract that may increase or decrease based on the occurrence or non-occurrence of a future event.- What two methods can be used to measure variable consideration under ASC 606?
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Expected value method (probability-weighted) or most likely amount method, whichever better predicts the amount.- What is the constraint on variable consideration under ASC 606?
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Do not include variable consideration if it is highly probable that a significant reversal will occur when the uncertainty is resolved.- Define transaction price under ASC 606.
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The amount of consideration the company expects to receive in exchange for transferring promised goods or services to a customer.- When must time value of money be adjusted in transaction price under ASC 606?
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When there is a significant financing component and the contract timing is longer than one year.- What are contract costs under ASC 606?
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Incremental costs of obtaining a contract and costs incurred to fulfill a contract.- Which contract costs should be capitalized under ASC 606?
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Incremental costs of obtaining a contract and costs to fulfill a contract if they are expected to be recovered.- What is a contract asset under ASC 606?
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A right to consideration in exchange for goods or services transferred when that right is conditioned on something other than the passage of time.- What is a contract liability under ASC 606?
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An obligation to transfer goods or services to a customer for which the company has received consideration from the customer.- How are licenses classified under ASC 606?
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Either a right to use the company's intellectual property (point in time) or a right to access the company's intellectual property (over time).
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