Revenue Take-Home Questions
Question 1
COMPANYX sells avideo product (camera) called Abc Flex with an MSRP of $500 each. It sells Information Transfer Machines (docks) for a MSRP of $1,500 each. It also sells Information.com service for $600 per year per camera, storage for $300 per camera per year, and charges $200 a year for maintenance per camera.
Scenario 1:
Mesa PD recently signed a deal to purchase:
200 COMPANYXAbc Flex Units – $80,000
Information.com Licenses for $70,000
1 Free Year of Storage
1 Free Year of Maintenance
10 Information Transfer Machines (docks) – $15,000
Total Deal – $165,000
Each of these deliverables above are considered separate units of accounting with standalone value to the customer.
Allocate the revenue to the deliverables and indicate the timing of recognition of each deliverable.
Scenario 2:
Customer PD recently signed a deal to purchase:
200 COMPANYXAbc Flex Units – $0
Information.com Licenses for $100,000
1 Year of Storage for $50,000
1 Free Year of Maintenance
10 Information Transfer Machines – $15,000
Total Deal – $165,000
Each of these deliverables above are considered separate units of accounting with standalone value to the customer.
Allocate the revenue to the deliverables and indicate the timing of recognition of each deliverable.
Question 2
How would it impact the allocation if the PD was also promised to receive the HighbarActivation component in the future for all 200 cameras when it is released? This component is Hardware, for which the deliverable is considered a separate unit of accounting with standalone value to the customer. This product isn’t officially being quoted to agencies yet, but a note regarding this promise was handwritten on the signed quote. COMPANYX plans to sell these components for $200 each.
Allocate the revenue to the deliverables (using Scenario 1 above) and indicate the timing of recognition of each deliverable.
Question 3
There is a clause in the signed agreement which allows the PD an extra 6 months after the initial one-year period expires to access and download their data which is stored on Information.com (in order to have time to remove all their data in the event they decide not to renew their e.com services). What impact would this have on the allocation or timing of recognition?
Please write a brief paragraph explaining your thoughts on this:
