Treat revenue recognition like performance obligations, using consistent methods across contracts. Additional sales costs are costs incurred to obtain or prepare to meet contractual performance obligations. They are costs that would not be incurred if the contract was not awarded. The purpose of this update and example is to provide insights and a better understanding of these changes and how they can affect your business.

1. ASU 606 Updates
Revenue Recognition Calculations for FASB
606
What will be covered:
• Performance Obligations
• Revenue Allocation
• Sample Calculations
• How Project Cost can help

2. Line Items Qty Unit Price Extended Price
Module Sale 1 6,000 6,000
Annual Maintenance 1 1,500 1,500
Performance Obligations
Typical Classic Software Module Sale

3. Line Items Year 1 Year 2 Year 3
Module Purchase 6,000
Annual Maintenance 1,500 1,500 1,500
Performance Obligations
Typical Revenue Recognition
Pattern

4. Line Items Year 1 Year 2 Year 3
Module Sale 6,000
Annual Maintenance 1,500 1,500 1,500
Performance Obligations
Typical Revenue Recognition Pattern

5. Line Items Year 1 Year 2 Year 3
Module & Annual
Maintenance 3,500 3,500 3,500
Performance Obligations
Single Performance Objective Recognition Pattern

6. Performance Obligations
Things to consider:
Subscription Pricing

7. ASU 606 Wants
• No games with unit prices
• Consistent revenue timing
• Recognize revenue when certain

8. Contract Value 19,500
Line Items Quantity Unit Price Extended Price
Module & Maintenance 1 3,500 3,500
Feature Enhancement 80 200 16,000
Total 19,500
Revenue Allocation
Typical Sale at List Prices

9. Line Items Year 1 Year 2 Year 3
Module & Annual
Maintenance 3,500 3,500 3,500
Feature Enhancement 16,000
Revenue Allocation
Delivery Schedule

10. Contract Value 19,500
Line Items Quantity Unit Price
Extended
Price
Module & Maintenance 1 3,500 3,500
Feature Enhancement 80 200 16,000
Total 19,500
Revenue Allocation
Typical Sale at List Prices

11. Contract Value 13,100
Line Items Quantity Unit Price Extended Price
Module & Maintenance 1 3,500 3,500
Feature Enhancement 80 120 9,600
Total 13,100
Revenue Allocation
Typical Sale at Discounted Price

12. Contract Value 16,300 Stand Alone
Line Items Quantity Unit Price
Extended
Price
Module & Maintenance 1 3,500 3,500
Feature Enhancement 80 160 12,800
Total 16,300
Revenue Allocation
Typical Sale at Stand Alone Prices

13. Contract Value 23,300 Stand Alone
Unit Price
Extended Price
At Stand Alone
PricesLine Items Quantity
Maintenance 3 3,500 10,500
Feature Enhancement 80 160 12,800
Total 23,300
Revenue Allocation
Stand Alone Price Revenue Allocation

14. Contract Value 20,100
Stand Alone
Unit Price
Extended
Price
At Stand
Alone Prices
Allocated
Revenue
Line Items Qty
Maintenance 3 3,500 10,500 9,058
Feature Enhancement 80 160 12,800 11,042
Total 23,300 20,100
Revenue Allocation
Stand Alone Price Revenue Allocation

15. Sample Calculations
Simple License Contract
Contract Value 31,500
Stand Alone
Unit Price
Extended
Stand Alone
Price
Revenue
Allocation
Line Items Qty
Module & 3 Years Maint. 3 3,500 10,500 10,053
Feature Enhancement 80 160 14,400 13,787
Remote Sensors 100 80 8,000 7,660
Total 32,900 31,500

16. Sample Calculations
Additional Entries
Additional Sales Costs Qty Extended Cost
Sales Commissions 1 3,000
Remote Sensor Variable
Consideration
Qty Contract Price
Extended
Price
Unit Cost
Right of Return 6 80 480 30
Unit Cost
Less Recovery Cost
Asset Value

17. Period
Revenue
Invoiced
Revenue
Allocated
Revenue
Recognized
Cumulative
Asset WIP CGS
1 13,787
2 1,000
3 1,800
4 14,400 13,787 0 4,000
Sample Calculations
Feature Enhancement

18. Month
Quantity
Invoiced
Revenue
Invoiced
Revenue
Allocated
Revenue
Recognized
Qty to
Return
Asset
WIP
Liability
Def Rev
1 0 7,660 0
2 0 4,000 3,830 3 90 240
3 50 4,000 3,860 3 90 240
Total 100 8,000 7,690 6 180 480
Sample Calculations
Right of Return – Remote Sensors

19. Month 1 Month 2 Month 3 Month 4
Module &
Maintenance Revenue Invoiced 3,500
Revenue
Recognized 279 279 279 279
Deferred Revenue 3,221 2,942 2,662 2,383
Sales Commission
Asset 2,917 2,833 2,750 2,667
Sample Calculations
Contract Transactions & Balances
ERP Transactions Revenue Recognition
Transactions

20. Month 1 Month 2 Month 3 Month 4
Feature
Enhancement Revenue Invoiced 14,400
Revenue
Recognized 13,787
Work-in-Progress 1,000 1,800 1,200
Cost of Sales 4,000
Sample Calculations
Contract Transactions & Balances
ERP Transactions Revenue Recognition
Transactions

21. Month 1 Month 2 Month 3 Month 4
Remote
Sensors Revenue Invoiced 4,000 4,000
Revenue Recognized 3,830 3,830
Cost of Sales (40*50) 2,000 2,000
Right of Return Liability 240 480 480
Right of Return Asset 90 180 180
Sample Calculations
Contract Transactions & Balances
ERP Transactions Revenue Recognition
Transactions

22. Revenue Recognition with Project Cost

23. Project Cost
What it does:
• Integrates with Payables, Receivable, Inventory, Sales Order, Purchase
Order, Payroll, General Ledgers, and Smartlist Modules
• Eliminates unnecessary keystrokes and double entry
• Automates the creation of invoices, employee expense transactions,
payroll transactions, project budgets, and project purchase orders.
How it makes your work simpler and easier® in Dynamics GP:
• Users can logon anywhere/anytime to record Time and Expense
information
• Managers can use the powerful Budgeting and Project Analysis Tools

24. Contact Us
• Rockton Software
• sales@rocktonsoftware.com
• 877-476-2586