B2W Flipbooks

Page | 24 ASC 606-10-55-197 An entity enters into a contract with a customer to build a customized asset. The promise to transfer the asset is a performance obligation that is satisfi ed over time. The promised consideration is $2.5 Million, but that amount will be reduced or increased depending on the timing of completion of the asset. Specifi cally, for each day after March 31, 20X7 that the asset is incomplete, the promised consideration is reduced by $10,000. For each day before March 31, 20X7 that the asset is complete, the promised consideration increases by $10,000. ASC 606-10-55-198 In addition, upon completion of the asset, a third party will inspect the asset and assign a rating based on metrics that are defi ned in the contract. If the asset receives a specifi ed rating, the entity will be entitled to an incentive bonus of $150,000. ASC 606-10-55-199 In determining the transaction price, the entity prepares a separate estimate for each element of variable consideration to which the entity will be entitled using the estimation methods described in ASC 606-10-32-8: a. The entity decides to use the expected value method to estimate the variable consideration associated with the daily penalty or incentive (that is, $2.5 million, plus or minus $10,000 per day). This is because it is the method that the entity expects to better predict the amount of consideration to which it will be entitled. b. The entity decides to use the most likely amount to estimate the variable consideration associated with the incentive bonus. This is because there are only two possible outcomes ($150,000 or $0) and it is the method that the entity expects to better predict the amount of consideration to which it will be entitled. ASC 606-10-55-200 The entity considers the guidance in ASC 606-10-32-11 through 32-13 on constraining estimates of variable consideration to determine whether the entity should include some or all of its estimate of variable consideration in the transaction price. EXAMPLE 1: ESTIMATING VARIABLE CONSIDERATION FOR PROJECT AWARDS / PENALTIES Evaluating Variable Consideration (continued) >

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