Discussion
Can anyone tell me whether there is the same issue in UK GAAP with bundling multiple years service in with a product, as there is under US GAAP. I.E can you recongise 100% of the product revenue up front & then recgnise the 1/4ly service revenue, or do you have to recognise the entire project (product & service) over, say, 12 quarters?
Alex
Alex
Depends what the form of the transaction is. If you're selling a lump of kit to someone, then you would recognise the income for the kit at the point of sale. You would then recognise the service income in the quarter to which it relates. FRS 18 matching/accruals concept.
If you're leasing the item to them, then you shouldn't be banging all the income in up front.
If you're leasing the item to them, then you shouldn't be banging all the income in up front.
Thanks for that. So even if the kit & service were bundled, with no separation in the quote (ie the customer just sees a 1 line quote of "kit + 3 years support = £100,000"), you can still recognise 100% of the kit element on delivery & then the pro-ratad support element in the month accrued?
The reason I ask is that I got burned once on a US GAAP contract that one of my predecessors signed that meant I had to de-book $55m revenue until we could resolve it. I don't fancy that happening again too much!
The reason I ask is that I got burned once on a US GAAP contract that one of my predecessors signed that meant I had to de-book $55m revenue until we could resolve it. I don't fancy that happening again too much!
Well I'm not entirely up to speed on IFRS so Eric might be along soon to slap me in the chops and tell me to stop being silly, but any accounting I've done the life of an asset isn't relevant if you're selling it to someone else.
It would be good practice to separate the service and equipment elements of the invoice though. Dependent on who you're selling to, they could reclaim the VAT on the service element but not the equipment. Makes life difficult if you don't know what the service element is.
It's also preferable to have separate invoices for different accounting years.
It would be good practice to separate the service and equipment elements of the invoice though. Dependent on who you're selling to, they could reclaim the VAT on the service element but not the equipment. Makes life difficult if you don't know what the service element is.
It's also preferable to have separate invoices for different accounting years.
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