Accrual - Computer Support Contracts

Accrual - Computer Support Contracts

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A computer maintenance / support company have customers who purchase contracts directly with the computer support company who provide ll the service and support and the un-expired portion of these contracts is accrued at year end. In addition to the above contracts the company also sells, as an agent, support contracts with another maintenance supplier. Given that the first company have no resposibility to provide any service for these second type of contracts is it necessary to accrue the un-expired portion of these 'agency' sold agreements ?. A similar scenario would be with an insurance broker who sells insurance as an agent. Are they required to accrue all un-expired portions of policies ?

Your help would be appreciated.

Don
Don

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By NeilW
12th Oct 2005 13:59

Cancellation
Depends on the nature of the agency agreement. Is there is any chance of a clawback if such a contract is cancelled? If there is then you need to provide for it until the clawback period has expired, if there isn't then I would think you can treat it as a point in time transaction.

The most exciting one is when you sell 3rd party period based contracts through the entity - rather than as agent. Then you have to defer the income as well as prepay the support contract.

NeilW

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By User deleted
13th Oct 2005 12:05

Thanks
Thank You Neil - your observations are very much appreciated.

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