Revenue Recognition Policy

A software reseller that provides maintenance contracts is recognising revenue on invoice date.

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Is there any basis under UK GAAP / FRS 102 section 23 for a company to recognise revenue on invoice date for software maintenance contracts of a year or multi-year (invoiced and payable in advance quarterly, annually or multi-yearly), using their logic that all sales costs are written off at the same time, there is no additional cost to service beyond existing overhead, the contracts are non-cancellable and the business is a going concern?

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Me
By John Charman
09th Mar 2018 03:45

http://www.frc.org.uk/getattachment/c6a8a982-2c6a-4732-8ad7-43ca9b2ff6e6...

Last page, right and side of the table.

Service contracts should be recognised over the period of the contract on a straight line basis unless there is any proof over stage of completion.

With regards to the costs, these need to be assessed on an individual basis. Some costs may need to be recorded as prepayments and released to the profit in the following year.

Hope this helps.

John

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By hazzabaijan
09th Mar 2018 09:54

Many thanks John, I'm aware of what they should be doing, what I'd like to know is there any basis to not do it that way!? And would that creative way meet the standards and pass an audit?

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By hazzabaijan
09th Mar 2018 12:12

"...unless there is evidence that some other
method better represents the stage of
completion."
(FRS 102 paragraph 23.15)

The question is: does the current policy of the company satisfy that there is enough evidence it is a better method to represent the stage of completion?

Are there any examples of what a better method looks like and do any of those examples concur with the policy of the company?

Or, is it as suspected, the company policy is non-compliant?

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