B2W Flipbooks

Page | 9 Identifying Contracts with Customers (continued) > REVENUE RECOGNIZED AT POINT IN TIME VS. OVER TIME (ASC 606-10-25-23) Revenue from contracts with customers is recognized when or as performance obligations are satisfi ed. Satisfaction is evidenced by the transfer of control over the goods or services to the customer and coincides with the customer's ability to obtain the potential cash fl ows associated with an asset. The determination of how and when control is transferred ultimately directs how revenue is recognized. This determination is made at the inception of the contract for each identifi ed performance obligation and results in recognition either over time or at a point in time. This assessment may only be revised during the contract if there are modifi cations to the contract that warrant reconsideration. PERFORMANCE OBLIGATIONS SATISFIED OVER TIME (ASC 606-10-25-27) Performance obligations are deemed to be satisfi ed over time if one of the following is true: 1. The goods or services are received and consumed by the customer simultaneously. This requirement is typically met during the performance of services that are consumed immediately such as service work, maintenance and similar routine or recurring services. Another consideration that would result in transfer of control over time is if another entity would not need to reperform work in the event the remaining contract was transferred. 2. The customer controls an asset created during the performance of the contract, as the asset is created. This is true for customers who own or control land or an underlying structure which is being improved or expanded during the performance of the contract. Contract terms will need to be scrutinized to determine if customers take possession or have the risks and rewards of ownership prior to the completion of the contract. This criterion will apply to a large number of construction contracts and will result in the recognition of revenue over time. 3. Performance of the contract does not create an asset with an alternative use to the contractor and there is an enforceable right to payment for performance completed to date. An asset that does not have an alternative use is suffi ciently customized (at completion) to the extent it would not be feasible to redirect the asset for another use or sell to a diff erent customer, assuming there has been no termination of the contract. Enforceable right to payment exists if the customer would be required to pay a reasonable margin if the contract was terminated for convenience or reasons other than failure to perform. In order for revenue to be recognized over time under the no alternative use and enforceable right to payment criteria, both of these conditions must apply. The above elements must be evaluated for all performance obligations and will require substantial amounts of judgment to determine the proper application. The following list of questions should be applied to each performance obligation, and if answered yes, would likely result in the recognition of revenue over time: 1. Are performance by the contractor and consumption by the customer simultaneous? 2. If the contract were terminated, and transferred to a diff erent contractor, would the completion of the contract require the new contractor to reperform signifi cant work?

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