Income Statement and Milestone
When should the milestone payments received to date by SolvGen be recognized as revenue?
A: FASB codification (605-28) milestone method
SolvGen Inc. is gonging to use the milestone method to recognize the revenue. The milestone method is a recently issued method of recognizing revenue for research and development arrangements under which consideration to be received by the vendor is contingent upon the achievement of certain milestones(FASB codification (605-28) milestone method).
Under the commonly applied milestone method, a vendor recognizes revenue in the period during which the milestone is achieved. Each milestone is essentially treated as a separate contract for accounting purposes.
The milestone method applies only to (a) research and development deliverables or (b) units of accounting under which the vendor satisfies its performance obligations over a period of time and some or all of the consideration is contingent upon uncertain future events or circumstances,
The milestone method is the only acceptable method for recognizing deliverable consideration or unit of accounting consideration contingent upon achievement of a substantive milestone as revenue in its entirety in the period in which the milestone is achieved。
In order to recognize revenue related to a milestone, the milestone must be considered substantive in its entirety (i.e., milestone consideration may not be bifurcated into substantive and non-substantive components).
Requires that (1) determining whether a milestone is substantive should be made only at the inception of the arrangement, and (2) to be substantive, consideration earned from the achievement of a milestone should:
Be commensurate with the vendor 's performance to achieve the milestone or with the enhancement of the value of the delivered items.
Relate only to past performance (no portion of the milestone may relate to remaining deliverables and no portion may be refundable or adjusted through penalty based
A: FASB codification (605-28) milestone method
SolvGen Inc. is gonging to use the milestone method to recognize the revenue. The milestone method is a recently issued method of recognizing revenue for research and development arrangements under which consideration to be received by the vendor is contingent upon the achievement of certain milestones(FASB codification (605-28) milestone method).
Under the commonly applied milestone method, a vendor recognizes revenue in the period during which the milestone is achieved. Each milestone is essentially treated as a separate contract for accounting purposes.
The milestone method applies only to (a) research and development deliverables or (b) units of accounting under which the vendor satisfies its performance obligations over a period of time and some or all of the consideration is contingent upon uncertain future events or circumstances,
The milestone method is the only acceptable method for recognizing deliverable consideration or unit of accounting consideration contingent upon achievement of a substantive milestone as revenue in its entirety in the period in which the milestone is achieved。
In order to recognize revenue related to a milestone, the milestone must be considered substantive in its entirety (i.e., milestone consideration may not be bifurcated into substantive and non-substantive components).
Requires that (1) determining whether a milestone is substantive should be made only at the inception of the arrangement, and (2) to be substantive, consideration earned from the achievement of a milestone should:
Be commensurate with the vendor 's performance to achieve the milestone or with the enhancement of the value of the delivered items.
Relate only to past performance (no portion of the milestone may relate to remaining deliverables and no portion may be refundable or adjusted through penalty based