Revenue Recognition of Success Fees

Revenue Recognition of Success Fees

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A company trades as a brokerage earning retainers and upon a successful outcome, receives a success fee. If the work was done in one year, yet the event, which is outside of the control of the 'broker' occurs in the subsequent financial year, can the success fee be included in the finiancial year in which the work was done and hence the costs incurred? If not, there is no matching of revenues to costs and the accounts wouldn't be reflecting a true and fair view.

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By Towards excellence
11th Jan 2012 10:14

Hello

The balance sheet takes precedence.

If there was a right to consideration by virtue of performance at the year end, then that should be recognised, with a debit to assets and a credit to revenue.

The same applies to the costs / creditors. If there was an obligation to transfer economic benefits as a result of past transactions or events, then you recognise the liability. The corresponding entry goes to costs. However, if the cost has not been used up, i.e. it is still an asset (a right to receive future economic benefits), then it would be appropriate to carry it forward as an asset. This will then be 'expensed' when you recognise the revenue, so you achieve your matching.

Apologies if the above seems patronising - it is not meant to be, and just shows the way I approach these conceptual problems.

SA

 

 

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By kstan1122
11th Jan 2012 15:45

I don't think you can recognise the success fee as a revenue

From the P&L perspective, I don’t think you can recognise the success fee as a revenue in P&L until the completion occurs. This is because the stage of completion could not be measured reliably and the customer would not be contractually liable for the payment at the balance sheet date.    

  

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