2. Amend paragraphs 606-10-55-36 through 55-40 and add paragraphs 606-10-55-36A, 606-10-55-37A through 55-37B, and 606-10-55-39A, with a link to transition paragraph 606-10-65-1, as follows:
Revenue from Contracts with Customers—Overall
Implementation Guidance and Illustrations
> Implementation Guidance
> > Principal versus Agent Considerations
606-10-55-36 When another party is involved in providing goods or services to a
customer, the entity should determine whether the nature of its promise is a
performance obligation to provide the specified goods or services itself (that is, the entity is a principal) or to arrange for
those goods or services to be provided by the other party
to provide those goods or services
(that is, the entity is an agent).
An entity determines whether it is a principal or an agent for each specified good or service promised to the customer. A specified good or service is a distinct good or service (or a distinct bundle of goods or services) to be provided to the customer (see paragraphs 606-10-25-19 through 25-22). If a contract with a customer includes more than one specified good or service, an entity could be a principal for some specified goods or services and an agent for others.
606-10-55-36A To determine the nature of its promise (as described in paragraph 606-10-55-36), the entity should:
a. Identify the specified goods or services to be provided to the customer (which, for example, could be a right to a good or service to be provided by another party [see paragraph 606-10-25-18])
b. Assess whether it controls (as described in paragraph 606-10-25-25) each specified good or service before that good or service is transferred to the customer.
606-10-55-37 An entity is a principal if
the entity
it controls
a promised
the specified good or service before t
he entity transfers the
that good or service
is transferred to a customer. However, an entity
does is
not necessarily
acting as a principal
control a specified good if the entity obtains legal title
of a product
to that good only momentarily before legal title is transferred to a customer. An entity that is a principal
in a contract
may satisfy
a
its performance obligation
by
to provide the specified good or service itself or it may engage another party (for example, a subcontractor) to satisfy some or all of
a
the performance obligation on its behalf.
When an entity that is a principal satisfies a performance obligation, the entity recognizes revenue in the gross amount of considerations to which it expects to be entitled in exchange for those goods or services transferred.
[Content amended and moved to paragraph 606-10-55-37B]
606-10-55-37A When another party is involved in providing goods or services to a customer, an entity that is a principal obtains control of any one of the following:
a. A good or another asset from the other party that it then transfers to the customer.
b. A right to a service to be performed by the other party, which gives the entity the ability to direct that party to provide the service to the customer on the entity’s behalf.
c. A good or service from the other party that it then combines with other goods or services in providing the specified good or service to the customer. For example, if an entity provides a significant service of integrating goods or services (see paragraph 606-10-25-21(a)) provided by another party into the specified good or service for which the customer has contracted, the entity controls the specified good or service before that good or service is transferred to the customer. This is because the entity first obtains control of the inputs to the specified good or service (which include goods or services from other parties) and directs their use to create the combined output that is the specified good or service.
606-10-55-37B When
(or as) an entity that is a principal satisfies a performance obligation, the entity recognizes
revenue in the gross amount of consideration to which it expects to be entitled in exchange for
the specified good or service those goods or services
transferred.
[Content amended as shown and moved from paragraph 606-10-55-37]
606-10-55-38 An entity is an agent if the entity’s performance obligation is to arrange for the provision of
the specified good goods
or
service services
by another party.
An entity that is an agent does not control the specified good or service provided by another party before that good or service is transferred to the customer. When
(or as) an entity that is an agent satisfies a performance obligation, the entity recognizes revenue in the amount of any fee or commission to which it expects to be entitled in exchange for arranging
for the other party to provide its
the specified goods or services
to be provided by the other party. An entity’s fee or commission might be the net amount of consideration that the entity retains after paying the other party the consideration received in exchange for the goods or services to be provided by that party.
606-10-55-39 Indicators that an entity i
s an agent (and therefore does not control
controls the
specified good or service before it is
provided
transferred to
the customer a customer
)
(and is therefore a principal [see paragraph 606-10-55-37]) include
, but are not limited to, the following:
Another party
The entity is primarily responsible for fulfilling the contract
promise to provide the specified good or service. This typically includes responsibility for the acceptability of the specified good or service (for example, primary responsibility for the good or service meeting customer specifications). If the entity is primarily responsible for fulfilling the promise to provide the specified good or service, this may indicate that the other party involved in providing the specified good or service is acting on the entity’s behalf.
- The entity
does not have
has inventory risk before or after the goods
the specified good or service have has been ordered by
transferred to a customer, during shipping,
or on return
after transfer of control to the customer (for example, if the customer has a right of return). For example, if the entity obtains, or commits to obtain, the specified good or service before obtaining a contract with a customer, that may indicate that the entity has the ability to direct the use of, and obtain substantially all of the remaining benefits from, the good or service before it is transferred to the customer.
- The entity
does not have
has discretion in establishing the prices
price for the other party’s goods or services and, therefore, the benefit that the entity can receive from those goods or services is limited
specified good or service. Establishing the price that the customer pays for the specified good or service may indicate that the entity has the ability to direct the use of that good or service and obtain substantially all of the remaining benefits. However, an agent can have discretion in establishing prices in some cases. For example, an agent may have some flexibility in setting prices in order to generate additional revenue from its service of arranging for goods or services to be provided by other parties to customers.
- Subparagraph superseded by Accounting Standards Update No. 2016-08.
The entity’s consideration is in the form of a commission.
- Subparagraph superseded by Accounting Standards Update No. 2016-08.
The entity is not exposed to credit risk for the amount receivable from a customer in exchange for the other party’s goods or services.
606-10-55-39A The indicators in paragraph 606-10-55-39 may be more or less relevant to the assessment of control depending on the nature of the specified good or service and the terms and conditions of the contract. In addition, different indicators may provide more persuasive evidence in different contracts.
606-10-55-40 If another entity assumes the entity’s performance obligations and contractual rights in the contract so that the entity is no longer obliged to satisfy the performance obligation to transfer the
promised
specified good or service to the customer (that is, the entity is no longer acting as the principal), the entity should not recognize revenue for that performance obligation. Instead, the entity should evaluate whether to recognize revenue for satisfying a performance obligation to obtain a contract for the other party (that is, whether the entity is acting as an agent).
3. Amend paragraph 606-10-55-93(p), with a link to transition paragraph 606-10-65-1, as follows:
> Illustrations
606-10-55-93 The Examples are organized as follows:
p. Principal versus Agent Considerations
Example 45—Arranging for the Provision of Goods or Services (Entity Is an Agent)
Example 46—Promise to Provide Goods or Services (Entity Is a Principal)
Example 46A—Promise to Provide Goods or Services (Entity Is a Principal)
Example 47—Promise to Provide Goods or Services (Entity Is a Principal)
Example 48—Arranging for the Provision of Goods or Services (Entity Is an Agent)
Example 48A—Entity Is a Principal and an Agent in the Same Contract
4. Amend paragraphs 606-10-55-316 through 55-318, 606-10-55-323 through 55-324, 606-10-55-326 through 55-331, and 606-10-55-333 through 55-334 and add paragraphs 606-10-55-318A through 55-318C, 606-10-55-323A through 55-323B, 606-10-55-324A through 55-324G and their related heading, 606-10-55-328A through 55-328C, 606-10-55-333A through 55-333B, and 606-10-55-334A through 55-334F and their related heading, with a link to transition paragraph 606-10-65-1, as follows:
> > Principal versus Agent Considerations
606-10-55-316 Examples 45–
48A4
8
illustrate the guidance in paragraphs 606-10-55-36 through 55-40 on principal versus agent considerations.
> > > Example 45—Arranging for the Provision of Goods or Services (Entity Is an Agent)
606-10-55-317 An entity operates a website that enables customers to purchase goods from a range of suppliers who deliver the goods directly to the customers.
Under the terms of the entity’s contracts with suppliers, when When
a good is purchased via the website, the entity is entitled to a commission that is equal to 10 percent of the sales price. The entity’s website facilitates payment between the supplier and the customer at prices that are set by the supplier. The entity requires payment from customers before orders are processed, and all orders are nonrefundable. The entity has no further obligations to the customer after arranging for the products to be provided to the customer.
606-10-55-318 To determine whether the entity’s performance obligation is to provide the specified goods itself (that is, the entity is a principal) or to arrange for
those goods to be provided by the supplier the supplier to provide those goods
(that is, the entity is an agent), the entity
considers
identifies the
nature of its promise
specified good or service to be provided to the customer and assesses whether it controls that good or service before the good or service is transferred to the customer.
Specifically, the entity observes that the supplier of the goods delivers its goods directly to the customer and, thus, the entity does not obtain control of the goods. Instead, the entity’s promise is to arrange for the supplier to provide those goods to the customer. In reaching that conclusion the entity considers the following indicators from paragraph 606-10-55-39 as follows:
- Subparagraph superseded by Accounting Standards Update No. 2016-08.
The supplier is primarily responsible for fulfilling the contract—that is, by shipping the goods to the customer.
- Subparagraph superseded by Accounting Standards Update No. 2016-08.
The entity does not take inventory risk at any time during the transaction because the goods are shipped directly by the supplier to the customer.
- Subparagraph superseded by Accounting Standards Update No. 2016-08.
The entity’s consideration is in the form of a commission (10 percent of the sales price).
- Subparagraph superseded by Accounting Standards Update No. 2016-08.
The entity does not have discretion in establishing prices for the supplier’s goods and, therefore, the benefit the entity can receive from those goods is limited.
- Subparagraph superseded by Accounting Standards Update No. 2016-08.
Neither the entity nor the supplier has credit risk because payments from customers are made in advance.
[Content amended and moved to paragraph 606-10-55-318C]
606-10-55-318A The website operated by the entity is a marketplace in which suppliers offer their goods and customers purchase the goods that are offered by the suppliers. Accordingly, the entity observes that the specified goods to be provided to customers that use the website are the goods provided by the suppliers, and no other goods or services are promised to customers by the entity.
606-10-55-318B The entity concludes that it does not control the specified goods before they are transferred to customers that order goods using the website. The entity does not at any time have the ability to direct the use of the goods transferred to customers. For example, it cannot direct the goods to parties other than the customer or prevent the supplier from transferring those goods to the customer. The entity does not control the suppliers’ inventory of goods used to fulfill the orders placed by customers using the website.
606-10-55-318C In
As part of reaching that
conclusion, conclusion
the entity considers the following indicators
from
in paragraph
606-10-55-39. 606-10-55-39 as follows
:
The entity concludes that these indicators provide further evidence that it does not control the specified goods before they are transferred to the customers.
a. The supplier is primarily responsible for fulfilling the
contract—that is, by shipping the goods to the customer
promise to provide the goods to the customer. The entity is neither obliged to provide the goods if the supplier fails to transfer the goods to the customer nor responsible for the acceptability of the goods.
b. The entity does not take inventory risk at any time
before or after the goods are transferred during the transaction because the goods are shipped directly by the supplier
to the customer.
The entity does not commit to obtain the goods from the supplier before the goods are purchased by the customer and does not accept responsibility for any damaged or returned goods.
c. The entity’s consideration is in the form of a commission (10 percent of the sales price).
d.
c. The entity does not have discretion in establishing prices for the supplier’s goods
and, therefore, the benefit the entity can receive from those goods is limited.
The sales price is set by the supplier.
e. Neither the entity nor the supplier has credit risk because payments from customers are made in advance.
[Content amended as shown and moved from paragraph 606-10-55-318]
606-10-55-319 Consequently, the entity concludes that it is an agent and its performance obligation is to arrange for the provision of goods by the supplier. When the entity satisfies its promise to arrange for the goods to be provided by the supplier to the customer (which, in this example, is when goods are purchased by the customer), the entity recognizes revenue in the amount of the commission to which it is entitled.
> > > Example 46—Promise to Provide Goods or Services (Entity Is a Principal)
606-10-55-320 An entity enters into a contract with a customer for equipment with unique specifications. The entity and the customer develop the specifications for the equipment, which the entity communicates to a supplier that the entity contracts with to manufacture the equipment. The entity also arranges to have the supplier deliver the equipment directly to the customer. Upon delivery of the equipment to the customer, the terms of the contract require the entity to pay the supplier the price agreed to by the entity and the supplier for manufacturing the equipment.
606-10-55-321 The entity and the customer negotiate the selling price, and the entity invoices the customer for the agreed-upon price with 30-day payment terms. The entity’s profit is based on the difference between the sales price negotiated with the customer and the price charged by the supplier.
606-10-55-322 The contract between the entity and the customer requires the customer to seek remedies for defects in the equipment from the supplier under the supplier’s warranty. However, the entity is responsible for any corrections to the equipment required resulting from errors in specifications.
606-10-55-323 To determine whether the entity’s performance obligation is to provide the specified goods or services itself (that is, the entity is a principal) or to arrange for
another party to provide
those goods or services
to be provided by another party (that is, the entity is an agent), the entity
considers the nature of its promise
identifies the specified good or service to be provided to the customer and assesses whether it controls that good or service before the good or service is transferred to the customer. The entity has promised to provide the customer with specialized equipment; however, the entity has subcontracted the manufacturing of the equipment to the supplier. In determining whether the entity obtains control of the equipment before control transfers to the customer and whether the entity is a principal, the entity considers the indicators in paragraph 606-10-55-39 as follows:
a.
Subparagraph superseded by Accounting Standards Update No. 2016-08.The entity is primarily responsible for fulfilling the contract. Although the entity subcontracted the manufacturing, the entity is ultimately responsible for ensuring that the equipment meets the specifications for which the customer has contracted.
b.
Subparagraph superseded by Accounting Standards Update No. 2016-08.The entity has inventory risk because of its responsibility for corrections to the equipment resulting from errors in specifications, even though the supplier has inventory risk during production and before shipment.
c.
Subparagraph superseded by Accounting Standards Update No. 2016-08.The entity has discretion in establishing the selling price with the customer, and the profit earned by the entity is an amount that is equal to the difference between the selling price negotiated with the customer and the amount to be paid to the supplier.
d.
Subparagraph superseded by Accounting Standards Update No. 2016-08.
The entity's consideration is not in the form of a commission.
e.
Subparagraph superseded by Accounting Standards Update No. 2016-08.The entity has credit risk for the amount receivable from the customer in exchange for the equipment.
606-10-55-323A The entity concludes that it has promised to provide the customer with specialized equipment designed by the entity. Although the entity has subcontracted the manufacturing of the equipment to the supplier, the entity concludes that the design and manufacturing of the equipment are not distinct because they are not separately identifiable (that is, there is a single performance obligation). The entity is responsible for the overall management of the contract (for example, by ensuring that the manufacturing service conforms to the specifications) and thus provides a significant service of integrating those items into the combined output—the specialized equipment—for which the customer has contracted. In addition, those activities are highly interrelated. If necessary modifications to the specifications are identified as the equipment is manufactured, the entity is responsible for developing and communicating revisions to the supplier and for ensuring that any associated rework required conforms with the revised specifications. Accordingly, the entity identifies the specified good to be provided to the customer as the specialized equipment.
606-10-55-323B The entity concludes that it controls the specialized equipment before that equipment is transferred to the customer (see paragraph 606-10-5537A(c)). The entity provides the significant integration service necessary to produce the specialized equipment and, therefore, controls the specialized equipment before it is transferred to the customer. The entity directs the use of the supplier’s manufacturing service as an input in creating the combined output that is the specialized equipment. In reaching the conclusion that it controls the specialized equipment before that equipment is transferred to the customer, the entity also observes that even though the supplier delivers the specialized equipment to the customer, the supplier has no ability to direct its use (that is, the terms of the contract between the entity and the supplier preclude the supplier from using the specialized equipment for another purpose or directing that equipment to another customer). The entity also obtains the remaining benefits from the specialized equipment by being entitled to the consideration in the contract from the customer.
606-10-55-324 The entity concludes that its promise is to provide the equipment to the customer. On the basis of the indicators in paragraph 606-10-55-39, the entity concludes that it controls the equipment before it is transferred to the customer.
Thus, the entity
concludes that it is a principal in the transaction
. The entity does not consider the indicators in paragraph 606-10-55-39 because the evaluation above is conclusive without consideration of the indicators. and
The entity recognizes revenue in the gross amount of consideration to which it is entitled from the customer in exchange for the
specialized equipment.
> > > Example 46A—Promise to Provide Goods or Services (Entity Is a Principal)
606-10-55-324A An entity enters into a contract with a customer to provide office maintenance services. The entity and the customer define and agree on the scope of the services and negotiate the price. The entity is responsible for ensuring that the services are performed in accordance with the terms and conditions in the contract. The entity invoices the customer for the agreed-upon price on a monthly basis with 10-day payment terms.
606-10-55-324B The entity regularly engages third-party service providers to provide office maintenance services to its customers. When the entity obtains a contract from a customer, the entity enters into a contract with one of those service providers, directing the service provider to perform office maintenance services for the customer. The payment terms in the contracts with the service providers generally are aligned with the payment terms in the entity’s contracts with customers. However, the entity is obliged to pay the service provider even if the customer fails to pay.
606-10-55-324C To determine whether the entity is a principal or an agent, the entity identifies the specified good or service to be provided to the customer and assesses whether it controls that good or service before the good or service is transferred to the customer.
606-10-55-324D The entity observes that the specified services to be provided to the customer are the office maintenance services for which the customer contracted and that no other goods or services are promised to the customer. While the entity obtains a right to office maintenance services from the service provider after entering into the contract with the customer, that right is not transferred to the customer. That is, the entity retains the ability to direct the use of, and obtain substantially all the remaining benefits from, that right. For example, the entity can decide whether to direct the service provider to provide the office maintenance services for that customer, or for another customer, or at its own facilities. The customer does not have a right to direct the service provider to perform services that the entity has not agreed to provide. Therefore, the right to office maintenance services obtained by the entity from the service provider is not the specified good or service in its contract with the customer.
606-10-55-324E The entity concludes that it controls the specified services before they are provided to the customer. The entity obtains control of a right to office maintenance services after entering into the contract with the customer but before those services are provided to the customer. The terms of the entity’s contract with the service provider give the entity the ability to direct the service provider to provide the specified services on the entity’s behalf (see paragraph 606-10-55-37A(b)). In addition, the entity concludes that the following indicators in paragraph 606-10-55-39 provide further evidence that the entity controls the office maintenance services before they are provided to the customer:
a. The entity is primarily responsible for fulfilling the promise to provide office maintenance services. Although the entity has hired a service provider to perform the services promised to the customer, it is the entity itself that is responsible for ensuring that the services are performed and are acceptable to the customer (that is, the entity is responsible for fulfilment of the promise in the contract, regardless of whether the entity performs the services itself or engages a third-party service provider to perform the services).
b. The entity has discretion in setting the price for the services to the customer.
606-10-55-324F The entity observes that it does not commit itself to obtain the services from the service provider before obtaining the contract with the customer. Thus, the entity has mitigated its inventory risk with respect to the office maintenance services. Nonetheless, the entity concludes that it controls the office maintenance services before they are provided to the customer on the basis of the evidence in paragraph 606-10-55-324E.
606-10-55-324G Thus, the entity is a principal in the transaction and recognizes revenue in the amount of consideration to which it is entitled from the customer in exchange for the office maintenance services.
> > > Example 47—Promise to Provide Goods or Services (Entity Is a Principal)
606-10-55-325 An entity negotiates with major airlines to purchase tickets at reduced rates compared with the price of tickets sold directly by the airlines to the public. The entity agrees to buy a specific number of tickets and must pay for those tickets regardless of whether it is able to resell them. The reduced rate paid by the entity for each ticket purchased is negotiated and agreed in advance.
606-10-55-326 The entity determines the prices at which the airline tickets will be sold to its customers. The entity sells the tickets and collects the consideration from customers when the tickets are purchased;
therefore, there is no credit risk
.
606-10-55-327 The entity also assists the customers in resolving complaints with the service provided by the airlines. However, each airline is responsible for fulfilling obligations associated with the ticket, including remedies to a customer for dissatisfaction with the service.
606-10-55-328 To determine whether the entity’s performance obligation is to provide the specified goods or services itself (that is, the entity is a principal) or to arrange for
another party to provide
those goods or services
to be provided by another party (that is, the entity is an agent), the entity
considers the nature of its promise
identifies the specified good or service to be provided to the customer and assesses whether it controls that good or service before the good or service is transferred to the customer. The entity determines that its promise is to provide the customer with a ticket, which provides the right to fly on the specified flight or another flight if the specified flight is changed or cancelled. In determining whether the entity obtains control of the right to fly before control transfers to the customer and whether the entity is a principal, the entity considers the indicators in paragraph 606-10-55-39 as follows:
a.
Subparagraph superseded by Accounting Standards Update No. 2016-08.The entity is primarily responsible for fulfilling the contract, which is providing the right to fly. However, the entity is not responsible for providing the flight itself, which will be provided by the airline.
b.
Subparagraph superseded by Accounting Standards Update No. 2016-08.The entity has inventory risk for the tickets because they are purchased before they are sold to the entity’s customers and the entity is exposed to any loss as a result of not being able to sell the tickets for more than the entity’s cost.
c.
Subparagraph superseded by Accounting Standards Update No. 2016-08.The entity has discretion in setting the sales prices for tickets to its customers.
d.
Subparagraph superseded by Accounting Standards Update No. 2016-08.As a result of the entity’s ability to set the sales prices, the amount that the entity earns is not in the form of a commission but, instead, depends on the sales price it sets and the costs of the tickets that were negotiated with the airline.
606-10-55-328A The entity concludes that with each ticket that it commits itself to purchase from the airline, it obtains control of a right to fly on a specified flight (in the form of a ticket) that the entity then transfers to one of its customers (see paragraph 606-10-55-37A(a)). Consequently, the entity determines that the specified good or service to be provided to its customer is that right (to a seat on a specific flight) that the entity controls. The entity observes that no other goods or services are promised to the customer.
606-10-55-328B The entity controls the right to each flight before it transfers that specified right to one of its customers because the entity has the ability to direct the use of that right by deciding whether to use the ticket to fulfill a contract with a customer and, if so, which contract it will fulfill. The entity also has the ability to obtain the remaining benefits from that right by either reselling the ticket and obtaining all of the proceeds from the sale or, alternatively, using the ticket itself.
606-10-55-328C The indicators in paragraph 606-10-55-39(b) through (c) also provide relevant evidence that the entity controls each specified right (ticket) before it is transferred to the customer. The entity has inventory risk with respect to the ticket because the entity committed itself to obtain the ticket from the airline before obtaining a contract with a customer to purchase the ticket. This is because the entity is obliged to pay the airline for that right regardless of whether it is able to obtain a customer to resell the ticket to or whether it can obtain a favorable price for the ticket. The entity also establishes the price that the customer will pay for the specified ticket.
606-10-55-329 The entity concludes that its promise is to provide a ticket (that is, a right to fly) to the customer. On the basis of the indicators in paragraph 606-10-55-39, the entity concludes that it controls the ticket before it is transferred to the customer.
Thus, the entity concludes that it is a principal in the transaction
transactions with customers. The entity and
recognizes revenue in the gross amount of consideration to which it is entitled in exchange for the tickets transferred
to the customers.
> > > Example 48—Arranging for the Provision of Goods or Services (Entity Is an Agent)
606-10-55-330 An entity sells vouchers that entitle customers to future meals at specified restaurants.
These vouchers are sold by the entity,
and the sales price of the voucher provides the customer with a significant discount when compared with the normal selling prices of the meals (for example, a customer pays $100 for a voucher that entitles the customer to a meal at a restaurant that would otherwise cost $200). The entity does not purchase
or commit itself to purchase vouchers in advance
of the sale of a voucher to a customer; instead, it purchases vouchers only as they are requested by the customers. The entity sells the vouchers through its website, and the vouchers are nonrefundable.
606-10-55-331 The entity and the restaurants jointly determine the prices at which the vouchers will be sold to customers.
The
Under the terms of its contracts with the restaurants, the entity is entitled to 30 percent of the voucher price when it sells the voucher.
The entity has no credit risk because the customers pay for the vouchers when purchased.
606-10-55-332 The entity also assists the customers in resolving complaints about the meals and has a buyer satisfaction program. However, the restaurant is responsible for fulfilling obligations associated with the voucher, including remedies to a customer for dissatisfaction with the service.
606-10-55-333 To determine whether the entity is a principal or an agent, the entity
considers the nature of its promise and whether it takes control of the voucher (that is, a right) before control transfers to the customer
identifies the specified good or service to be provided to the customer and assesses whether it controls the specified good or service before that good or service is transferred to the customer. In making this determination, the entity considers the indicators in paragraph 606-10-55-39 as follows:
a.
Subparagraph superseded by Accounting Standards Update No. 2016-08.The entity is not responsible for providing the meals itself, which will be provided by the restaurants.
b.
Subparagraph superseded by Accounting Standards Update No. 2016-08.The entity does not have inventory risk for the vouchers because they are not purchased before being sold to customers and the vouchers are nonrefundable.
c.
Subparagraph superseded by Accounting Standards Update No. 2016-08.The entity has some discretion in setting the sales prices for vouchers to customers, but the sales prices are jointly determined with the restaurants.
d.
Subparagraph superseded by Accounting Standards Update No. 2016-08.The entity’s consideration is in the form of a commission, because it is entitled to a stipulated percentage (30 percent) of the voucher price.
606-10-55-333A A customer obtains a voucher for the restaurant that it selects. The entity does not engage the restaurants to provide meals to customers on the entity’s behalf as described in the indicator in paragraph 606-10-55-39(a). Therefore, the entity observes that the specified good or service to be provided to the customer is the right to a meal (in the form of a voucher) at a specified restaurant or restaurants, which the customer purchases and then can use itself or transfer to another person. The entity also observes that no other goods or services (other than the vouchers) are promised to the customers.
606-10-55-333B The entity concludes that it does not control the voucher (right to a meal) at any time. In reaching this conclusion, the entity principally considers the following:
a. The vouchers are created only at the time that they are transferred to the customers and, thus, do not exist before that transfer. Therefore, the entity does not at any time have the ability to direct the use of the vouchers or obtain substantially all of the remaining benefits from the vouchers before they are transferred to customers.
b. The entity neither purchases nor commits itself to purchase vouchers before they are sold to customers. The entity also has no responsibility to accept any returned vouchers. Therefore, the entity does not have inventory risk with respect to the vouchers as described in the indicator in paragraph 606-10-55-39(b).
606-10-55-334 The entity concludes that its promise is to arrange for goods or services to be provided to customers (the purchasers of the vouchers) in exchange for a commission. On the basis of the indicators in paragraph 606-10-55-39, the entity concludes that it does not control the vouchers that provide a right to meals before they are transferred to the customers.
Thus, the entity concludes that it is an agent in the arrangement
with respect to the vouchers. The entity and
recognizes revenue in the net amount of consideration to which the entity will be entitled in exchange for
the service
arranging for the restaurants to provide vouchers to customers for the restaurants’ meals, which is the 30 percent commission it is entitled to upon the sale of each voucher.
> > > Example 48A—Entity Is a Principal and an Agent in the Same Contract
606-10-55-334A An entity sells services to assist its customers in more effectively targeting potential recruits for open job positions. The entity performs several services itself, such as interviewing candidates and performing background checks. As part of the contract with a customer, the customer agrees to obtain a license to access a third party’s database of information on potential recruits. The entity arranges for this license with the third party, but the customer contracts directly with the database provider for the license. The entity collects payment on behalf of the third-party database provider as part of its overall invoicing to the customer. The database provider sets the price charged to the customer for the license and is responsible for providing technical support and credits to which the customer may be entitled for service down-time or other technical issues.
606-10-55-334B To determine whether the entity is a principal or an agent, the entity identifies the specified goods or services to be provided to the customer and assesses whether it controls those goods or services before they are transferred to the customer.
606-10-55-334C For the purpose of this Example, it is assumed that the entity concludes that its recruitment services and the database access license are each distinct on the basis of its assessment of the guidance in paragraphs 606-10-2519 through 25-22. Accordingly, there are two specified goods or services to be provided to the customer—access to the third-party’s database and recruitment services.
606-10-55-334D The entity concludes that it does not control the access to the database before it is provided to the customer. The entity does not at any time have the ability to direct the use of the license because the customer contracts for the license directly with the database provider. The entity does not control access to the provider’s database—it cannot, for example, grant access to the database to a party other than the customer or prevent the database provider from providing access to the customer.
606-10-55-334E As part of reaching that conclusion, the entity also considers the indicators in paragraph 606-10-55-39. The entity concludes that these indicators provide further evidence that it does not control access to the database before that access is provided to the customer.
a. The entity is not responsible for fulfilling the promise to provide the database access service. The customer contracts for the license directly with the third-party database provider, and the database provider is responsible for the acceptability of the database access (for example, by providing technical support or service credits).
b. The entity does not have inventory risk because it does not purchase or commit to purchase the database access before the customer contracts for database access directly with the database provider.
c. The entity does not have discretion in setting the price for the database access with the customer because the database provider sets that price.
606-10-55-334F Thus, the entity concludes that it is an agent in relation to the third-party’s database service. In contrast, the entity concludes that it is the principal in relation to the recruitment services because the entity performs those services itself and no other party is involved in providing those services to the customer.