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Introduction

1. The Accounting Standards Codification is amended as described in paragraphs 2–8. In some cases, to put the change in context, not only are the amended paragraphs shown but also the preceding and following paragraphs. Terms from the Master Glossary are in bold type. Added text is underlined, and deleted text is
struck out
.

Amendments to Subtopic 606-10

2. Amend paragraph 606-10-15-3, with a link to transition paragraph 808-10- 65-2, as follows:
Revenue from Contracts with Customers—Overall
Scope and Scope Exceptions
> Transactions
606-10-15-2 An entity shall apply the guidance in this Topic to all contracts with customers, except the following:
  1. Lease contracts within the scope of Topic 842, Leases.
  2. Contracts within the scope of Topic 944, Financial Services—Insurance.
  3. Financial instruments and other contractual rights or obligations within the scope of the following Topics:
    1. Topic 310, Receivables
    2. Topic 320, Investments—Debt Securities
    2a. Topic 321, Investments—Equity Securities
    3. Topic 323, Investments—Equity Method and Joint Ventures
    4. Topic 325, Investments—Other
    5. Topic 405, Liabilities
    6. Topic 470, Debt
    7. Topic 815, Derivatives and Hedging
    8. Topic 825, Financial Instruments
    9. Topic 860, Transfers and Servicing.
  4. Guarantees (other than product or service warranties) within the scope of Topic 460, Guarantees.
  5. Nonmonetary exchanges between entities in the same line of business to facilitate sales to customers or potential customers. For example, this Topic would not apply to a contract between two oil companies that agree to an exchange of oil to fulfill demand from their customers in different specified locations on a timely basis. Topic 845 on nonmonetary transactions may apply to nonmonetary exchanges that are not within the scope of this Topic.
606-10-15-3 An entity shall apply the guidance in this Topic to a contract (other than a contract listed in paragraph 606-10-15-2) only if the counterparty to the contract is a customer. A customer is a party that has contracted with an entity to obtain goods or services that are an output of the entity’s ordinary activities in exchange for consideration.
A counterparty to the contract would not be a customer if, for example, the counterparty has contracted with the entity to participate in an activity or process in which the parties to the contract share in the risks and benefits that result from the activity or process (such as developing an asset in a collaboration arrangement) rather than to obtain the output of the entity’s ordinary activities.

Amendments to Subtopic 808-10

3. Amend paragraph 808-10-15-5 and add paragraphs 808-10-15-5A through 15-5C, with a link to transition paragraph 808-10-65-2, as follows:
Collaborative Arrangements—Overall
Scope and Scope Exceptions
> Transactions
808-10-15-3 The guidance in this Topic does not apply to arrangements for which the accounting is specifically addressed within the scope of other authoritative accounting literature.
> Other Considerations
808-10-15-4 A collaborative arrangement within the scope of this Topic is not primarily conducted through a separate legal entity created for that activity. However, in some situations part of a collaborative arrangement may be conducted in a legal entity for specific activities or for a specific geographic location. The existence of a legal entity for part of an arrangement does not prevent an arrangement from being a collaborative arrangement. The part of the arrangement that is conducted in a separate legal entity shall be accounted for under the guidance in Topic 810, Consolidation, Subtopic 323-10, Investments—Equity Method and Joint Ventures, or other related accounting literature. However, the disclosures required by paragraph 808-10-50-1 apply to the entire collaborative arrangement, notwithstanding that a portion of the collaborative arrangement may be conducted in a legal entity.
808-10-15-5 This Topic does not address all recognition or measurement matters related to collaborative arrangements, for example, determining the appropriate units of accounting, the appropriate recognition requirements for a given unit of account
accounting
, or when the recognition criteria are met.
808-10-15-5A A collaborative arrangement within the scope of this Topic may be partially within the scope of other Topics, including, but not limited to, Topic 606 on revenue from contracts with customers.
808-10-15-5B A collaborative arrangement is partially within the scope of Topic 606 if a unit of account, identified as a promised good or service (or bundle of goods or services) that is distinct within the collaborative arrangement using the guidance in paragraphs 606-10-15-4 and 606-10-25-19 through 25-22, is with a customer. An entity shall apply the guidance in Topic 606 to a unit of account that is within the scope of that Topic, including the recognition, measurement, presentation, and disclosure requirements. If a portion of a distinct bundle of goods or services is not with a customer, the unit of account is not within the scope of Topic 606.
808-10-15-5C For a collaborative arrangement that is wholly or partially outside the scope of other Topics, including Topic 606, the unit of account, recognition, and measurement for the unit(s) of account outside the scope of other Topics, including Topic 606, shall be based on an analogy to authoritative accounting literature or, if there is no appropriate analogy, a reasonable, rational, and consistently applied accounting policy election.
4. Amend paragraphs 808-10-45-1 and 808-10-45-3 and supersede paragraph 808-10-45-4, with a link to transition paragraph 808-10-65-2, as follows:
Other Presentation Matters
808-10-45-1 Participants in a collaborative arrangement shall report costs incurred and {add glossary link}revenue{add glossary link} generated from transactions with third parties (that is, parties that do not participate in the arrangement) in each entity’s respective income statement pursuant to the guidance on principal versus agent considerations in paragraphs 606-10-55-36 through 55-40. An entity shall not apply the equity method of accounting under Subtopics 323-10 and 323-30 to activities of collaborative arrangements.
808-10-45-2 For costs incurred and revenue generated from third parties, the participant in a collaborative arrangement that is deemed to be the principal for a given transaction under paragraphs 606-10-55-36 through 55-40 shall record that transaction on a gross basis in its financial statements.
808-10-45-3
Payments between participants pursuant to
Parts of a collaborative arrangement that are within the scope of other authoritative accounting literature in accordance with paragraph 808-10-15-5A
on income statement classification
shall be presented
accounted for
using the relevant provisions of that literature. If
the payments
parts of the arrangement are
not within
outside the scope of other authoritative accounting literature, the
income statement classification for the payments
presentation of those parts shall be based on an analogy to authoritative accounting literature or if there is no appropriate analogy, a reasonable, rational, and consistently applied accounting policy election. An entity shall evaluate the presentation of parts of a collaborative arrangement on the basis of the nature of the arrangement, the nature of its business operations, and the contractual terms of the arrangement. For example, if one party to an arrangement is required to make a payment to the other party to reimburse a portion of that party’s research and development costs, that portion of the net payment may be classified as research and development expense in the payor’s financial statements in accordance with Topic 730. An entity is precluded from presenting transactions in a collaborative arrangement together with revenue from contracts with customers unless the entity applies the guidance in Topic 606 to a unit of account that is within the scope of that Topic in accordance with paragraph 808-10-15-5B.
808-10-45-4 Paragraph superseded by Accounting Standards Update No. 2018-18.
An entity shall evaluate the income statement classification of payments between participants pursuant to a collaborative arrangement based on the nature of the arrangement, the nature of its business operations, the contractual terms of the arrangement, and whether those payments are within the scope of other authoritative accounting literature on income statement classification. If the payments are within the scope of other authoritative accounting literature, then the entity shall apply the relevant provisions of that literature. To the extent that these payments are not within the scope of other authoritative accounting literature, the income statement classification for the payments shall be based on an analogy to authoritative accounting literature or if there is no appropriate analogy, a reasonable, rational, and consistently applied accounting policy election. For example, if one party to an arrangement is required to make a payment to the other party to reimburse a portion of that party’s research and development cost, that portion of the net payment may be classified as research and development expense in the payor’s financial statements pursuant to Topic 730.
808-10-45-5 See Section 808-10-55 for additional guidance, including Examples 1 through 4.
5. Amend paragraphs 808-10-55-1, 808-10-55-3 through 55-10, 808-10-55-12 through 55-14, and 808-10-55-17 through 55-19, with a link to transition paragraph 808-10-65-2, as follows:
Implementation Guidance and Illustrations
> Illustrations
808-10-55-1 This Section is an integral part of the requirements of this Topic. This Section provides Examples that illustrate potential application of this Topic for
payments between participants in a collaborative arrangement
collaborative arrangements based on the limited facts presented. The evaluations following each of the Example fact patterns are not intended to represent the only manner in which the guidance in this Topic could be applied. These illustrative Examples do not address all recognition or measurement matters related to collaborative
arrangements. For
arrangements, for example,
the appropriate units of accounting,
the appropriate recognition requirements for a given unit of account
accounting,
or when the recognition criteria that are met are addressed in other authoritative accounting literature. Additional facts would most likely be required in order to fully evaluate the accounting and presentation issues related to these arrangements (in other words, to evaluate the possible effect of other authoritative accounting literature).
808-10-55-2 For the purpose of the Examples in this Section, assume that all of the arrangements are collaborative arrangements within the scope of this Topic.
> Example 1: Equal Participation in Results of Research, Development, and Commercialization Arrangement, Participants Perform Different Activities
808-10-55-3 This Example illustrates the guidance in Section 808-10-45. Pharma and Biotech agree to equally participate in the results of research and development activities for a drug candidate and in the commercialization activities if and when the drug candidate is approved for sale, pursuant to a joint development and marketing agreement (a 50 percent, 50 percent arrangement). Biotech is responsible for conducting research and development activities relating to the drug candidate, and Pharma is responsible for the commercialization activities if and when the drug candidate is approved for sale. On a quarterly basis, Pharma and Biotech provide the other party with financial information about the research and development activities performed by Biotech and the commercialization activities performed by Pharma under the joint development and marketing agreement. One participant is required to make a payment to the other participant for the proportionate share of the excess of the entities’ combined operating results pursuant to their joint development and marketing agreement. In the first annual period after the product launch, Biotech incurred research and development expenses of $10
million
million, and Pharma had sales to third parties of $50
million
million,
and
related manufacturing expenses of $20
million
million, and marketing expenses of $10 million. Pharma owes Biotech $15 million, such that each participant realizes a $5 million net profit from the arrangement (total sales of $50 million, less total expenses (including research and development) of $40 million, divided by 2).
808-10-55-4 Based on an evaluation of the facts and circumstances, Pharma concludes that it is the principal on the sales transactions with third parties and will present 100 percent of the sales, cost of sales, and marketing expenses in its income statement. Pharma has concluded that other authoritative accounting literature does not apply directly to
these
net payments to Biotech
, either directly or by analogy
, including Topic 606 on revenue from contracts with customers because Biotech is not a customer. Pharma has concluded that Biotech is not a customer because Biotech has not contracted with Pharma to obtain goods or services that are an output of Pharma’s ordinary activities in exchange for consideration. Pharma also has concluded that there is no other authoritative accounting literature that is appropriate to apply by analogy, and, accordingly, its accounting policy is to evaluate the
income statement classification for
presentation of amounts due from or owed to other participants associated with multiple activities in a collaborative arrangement based on the nature of each separate activity. As a result, Pharma disaggregates its $15 million net payable to Biotech in accordance with the nature of the individual components of the payable and characterizes the profit-sharing portion of the payable for 50 percent of the profit related to the sales as cost of sales ($10 million) and characterizes the portion of the payable to Biotech for research and development activities as research and development expense ($5 million). Pharma presents the following information in its financial statements with respect to this collaborative arrangement (in thousands):
Sales to third parties
$     50,000
Cost of goods sold (including $10,000 payable to Biotech for profit sharing)
30,000
Selling, general and administrative expense
10,000
Research and development expense (including $5,000 payable as a reimbursement of Biotech's expenses incurred)
5,000
Net profit
$       5,000
808-10-55-5 Biotech records research and development expense ($10 million) for its research and development activities.
Licensing intellectual property and performing contract research and development services are part of Biotech’s ongoing major or central operations.
Biotech has concluded that the research and development services to Pharma represent a distinct service provided to Pharma as a customer. Biotech has concluded that Pharma is a customer because Pharma contracted with Biotech to obtain research and development services that are an output of Biotech’s ordinary activities in exchange for consideration. Therefore, Biotech applies the guidance in Topic 606 on revenue from contracts with customers to account for and present its net receivable from Pharma, including profit-sharing payments, as revenue ($15 million) when recognized.
Biotech has concluded that other authoritative accounting literature does not apply to these payments, either directly or by analogy, and, accordingly, its accounting policy is to characterize the portion of its net receivable from Pharma related to research and development services and the portion of the net receivable for profit sharing as revenue ($5 million and $10 million, respectively) when recognized.
Biotech will not present sales, cost of sales, or marketing expenses related to the sales transactions with third parties because it is not the principal on those transactions.
Biotech presents the following information in its financial statements with respect to this collaborative arrangement (in thousands):
Revenues from collaborative arrangement
$     15,000
Cost of goods sold
-
Selling, general and administrative expense
-
Research and development expense
10,000
Net profit
$       5,000
808-10-55-6 This evaluation is not intended to illustrate the appropriate revenue recognition requirements for any of the transactions described in this Example or the appropriateness of the conclusions reached on determining whether and how authoritative accounting literature applies directly or by analogy. Rather, those conclusions have been assumed as facts in this Example.
Such an analysis would include, at a minimum, a determination of the applicable authoritative accounting literature, including whether or not the guidance in Topic 606 on revenue from contracts with customers, is applicable.
> Example 2: Equal Participation in Results of Research, Development, and Commercialization Arrangement, Participants Perform Some of the Same Activities
808-10-55-7 This Example illustrates the guidance in Section 808-10-45. Pharma and Biotech agree to equally participate in the results of research and development activities for a drug candidate and in the commercialization activities if the drug candidate is approved for sale, pursuant to a joint development and marketing agreement (a 50 percent, 50 percent arrangement). Assume that Pharma and Biotech both agree to provide resources during the research and development phase, and Pharma is responsible for the commercialization activities if the drug candidate is approved for sale. As both participants are performing research and development activities, there may be periods in which Biotech must make a payment to Pharma for its proportionate share of the research and development activities and periods in which Pharma must make payments to Biotech. On a quarterly basis, Pharma and Biotech provide financial information about the research and development activities performed by both parties and the commercialization activities performed by Pharma under the joint development and marketing agreement. One participant is required to make a payment to the other participant for a proportionate share of the excess of the parties’ combined operating results pursuant to their joint development and marketing agreement. In the first annual period after the product launch, Biotech and Pharma incurred research and development expenses of $10 million and $15 million, respectively. Pharma had sales to third parties of $75 million, related manufacturing expenses of $22.5 million, and marketing expenses of $20 million. As a result, Pharma owes Biotech $13.75 million, such that each participant realizes $3.75 million net profit from the arrangement (total sales of $75 million, less total expenses of $67.5 million, divided by 2).
808-10-55-8 Based on an evaluation of the facts and circumstances, Pharma concludes that it is the principal on the sales transactions with third parties and will present 100 percent of the sales, cost of sales, and marketing expenses in its income statement. Pharma has concluded that other authoritative accounting literature does not apply directly to
these
net payments to Biotech
, either directly or by analogy
, including Topic 606 because Biotech is not a customer. Pharma has concluded that Biotech is not a customer because Biotech has not contracted with Pharma to obtain goods or services that are an output of Pharma’s ordinary activities in exchange for consideration. Pharma also has concluded that there is no other authoritative accounting literature that is appropriate to apply by analogy, and, accordingly, its accounting policy is to evaluate the
income statement classification for
presentation of amounts due from or owed to other participants associated with multiple activities in a collaborative arrangement based on the nature of each separate activity. As a result, Pharma disaggregates the $13.75 million net payable to Biotech in accordance with the nature of the individual components of the payable and characterizes the portion of the payable related to 50 percent of the commercialization activities (sales to third parties less associated manufacturing and marketing costs) as cost of sales ($16.25 million). Pharma characterizes the portion of the net payable related to research and development activities as a reduction of its research and development expenses ($2.5 million), because performing contract research and development services is not part of its ordinary activities
ongoing major or central operations
. Pharma presents the following information in its financial statements with respect to this collaborative arrangement (in thousands):
Sales to third parties
$     75,000
Cost of goods sold (including $16,250 payable to Biotech for profit sharing)
38,750
Selling, general and administrative expense
20,000
Research and development expense (including $2,500
payable
receivable as a reimbursement of
Biotech's
Pharma's expenses incurred)
12,500
Net profit
$       3,750
808-10-55-9 Biotech records research and development expense ($10 million) for its research and development activities. Biotech will characterize the portion of the net receivable from Pharma related to Pharma’s sales to third parties
commercialization activities
($16.25 million) as revenue
, based on the fact that licensing intellectual property is part of Biotech’s ongoing major or central operations
. Biotech also considers performing research and development services to be part of its ordinary activities and is providing the output of those activities to Pharma as a customer in the context of the unit of account related to research and development services
ongoing major or central operations
. Biotech analyzes its specific facts and circumstances under the guidance on consideration payable to a customer in paragraphs 606-10-32-25 through 32-27 and determines that the portion of the net receivable that relates to a reimbursement of Pharma’s research and development costs ($2.5 million) should be characterized as a reduction of revenue. Biotech will not present sales, cost of sales, or marketing expenses related to the sales transactions with third parties because it is not the principal on those transactions. Biotech presents the following information in its financial statements with respect to this collaborative arrangement (in thousands):
Revenues from collaborative arrangement
$     13,750
Cost of goods sold
-
Selling, general and administrative expense
-
Research and development expense
10,000
Net profit
$       3,750
808-10-55-10 This evaluation is not intended to illustrate the appropriate revenue recognition requirements for any of the transactions described in this Example or the appropriateness of the conclusions reached on determining whether and how authoritative accounting literature applies directly or by analogy. Rather, those conclusions have been assumed as facts in this Example.
Such an analysis would include, at a minimum, a determination of the applicable authoritative accounting literature, including whether or not the guidance in Topic 606 is applicable.
> Example 3: Unequal Participation in Results of Research, Development, and Commercialization Arrangement, Participants Perform Some of the Same Activities
808-10-55-11 This Example illustrates the guidance in Section 808-10-45. Big Pharma and Little Pharma agree to jointly participate in the results of the research and development activities for a drug candidate and in the commercialization activities if and when the drug candidate is approved for sale, pursuant to a joint development and marketing agreement. Big Pharma and Little Pharma both agree to provide resources during the research and development and the commercialization activities. Little Pharma will be responsible for commercialization activities in the United States, and Big Pharma will be responsible for commercialization activities in Europe and Asia. Under the arrangement, they will share research and development costs incurred on a 50 percent, 50 percent basis. Little Pharma will retain 65 percent of the net profits from commercialization activities in the United States, and Big Pharma will retain 70 percent of the net profits from commercialization activities in Europe and Asia. On a quarterly basis, Big Pharma and Little Pharma provide financial information about the research and development and the commercialization activities performed by both parties under the joint development and marketing agreement, and one participant is required to make a payment to the other participant for a proportionate share of the excess of the parties’ combined operating results pursuant to their joint development and marketing agreement. The results of the first annual period of the collaborative arrangement prior to any payments between the parties were as follows (in thousands):
Little Pharma
Big Pharma
Combined
Sales to third parties
$     120,000
$     90,000
$     210,000
Cost of goods sold
30,000
35,000
65,000
Selling, general and administrative expense
25,000
20,000
45,000
Research and development expense
35,000
20,000
55,000
Net profit
$       30,000
$    15,000
$    45,000
808-10-55-12 Based on an evaluation of the facts and circumstances, Big Pharma concludes that it is the principal on the sales transactions with third parties in Europe and Asia and will present 100 percent of the sales, cost of sales, and marketing expenses related to those efforts in its income statement. Big Pharma has concluded that other authoritative accounting literature does not apply directly to
these
net payments to Little Pharma
, either directly or by analogy
, including Topic 606 because Little Pharma is not a customer. Big Pharma has concluded that Little Pharma is not a customer because Little Pharma has not contracted with Big Pharma to obtain goods or services that are an output of Big Pharma’s ordinary activities in exchange for consideration. Big Pharma also has concluded that there is no other authoritative accounting literature that is appropriate to apply by analogy, and, accordingly, its accounting policy is to evaluate the
income statement classification for
presentation of amounts associated with each separate activity. As a result, Big Pharma disaggregates its $4.75 million net receivable from Little Pharma in accordance with the nature of the individual components of the payable and characterizes the portion of the net receivable related to 30 percent of the profit related to the sales in Europe and Asia as expenses from collaborative arrangement ($10.5 million) and
characterizes
the portion of the net receivable related to a reimbursement of Little Pharma’s research and development costs as research and development expenses ($7.5 million). Big Pharma concludes that the portion of the net receivable directly related to Little Pharma’s third-party sales in the United States is analogous to a royalty and therefore characterizes the $22.75 million as revenue similar to a royalty. Big Pharma also concludes that any payment from Little Pharma for research and development activities would be characterized as a reduction of its research and development costs because performing contract research and development services is not part of its ordinary activities
ongoing major or central operations
. Big Pharma presents the following information in its financial statements with respect to this collaborative arrangement (in thousands):
Sales to third parties
$     90,000
Revenues from collaborative arrangement
22, 750
Cost of goods sold
35,000
Expenses from collaborative arrangement
10,500
Selling, general and administrative expense
20,000
Research and development expense (including $7,500 payable as a reimbursement of Little Pharma's expenses incurred)
27,500
Net profit
$     19,750
808-10-55-13 Little Pharma concludes that it is the principal on the sales transactions with third parties in the United States and will present 100 percent of the sales, cost of sales, and marketing expenses related to those efforts in its income statement. Little Pharma has concluded that other authoritative accounting literature does not apply directly to
these
net payments to Big Pharma
, either directly or by analogy
, including Topic 606 because Big Pharma is not a customer. Little Pharma has concluded that Big Pharma is not a customer because Big Pharma has not contracted with Little Pharma to obtain goods or services that are an output of Little Pharma’s ordinary activities in exchange for consideration. Little Pharma also has concluded that there is no other authoritative accounting literature that is appropriate to apply by analogy, and, accordingly, its accounting policy is to evaluate the
income statement classification for
presentation of payments associated with each separate activity. As a result, Little Pharma disaggregates its $4.75 million net payable to Big Pharma in accordance with the nature of the individual item and characterizes a portion of the net payable related to 35 percent of the profit related to the sales in the United States as expenses from collaborative arrangement ($22.75 million) and characterizes the portion of the net payable to Big Pharma for research and development activities as research and development expenses. Little Pharma concludes that the portion of the net payable directly related to profit sharing from Big Pharma’s third-party sales in Europe and Asia is analogous to a royalty and therefore should characterize the $10.5 million as revenue similar to a royalty. Little Pharma also concludes that any payment from Big Pharma for research and development activities will be characterized as a reduction of its research and development costs ($7.5 million) because performing contract research and development services is not part of its ordinary activities
ongoing major or central operations
. Little Pharma presents the following information in its financial statements with respect to this collaborative arrangement (in thousands):
Sales to third parties
$    120,000
Revenue from collaborative arrangement
10,500
Cost of goods sold
30,000
Expenses from collaborative arrangement
22,750
Selling, general and administrative expense
25,000
Research and development expense (including $7,500 due from Big Pharma as a reimbursement)
27,500
Net profit
$      25,250
808-10-55-14 This evaluation is not intended to illustrate the appropriate revenue recognition requirements for any of the transactions described in this Example or the appropriateness of the conclusions reached on determining whether and how authoritative accounting literature applies directly or by analogy. Rather, those conclusions have been assumed as facts in this Example.
Such an analysis would include, at a minimum, a determination of the applicable authoritative accounting literature, including whether or not the guidance in Topic 606 is applicable.
> Example 4: Equal Participation in Results of Production and Distribution of Major Motion Picture, Participants Perform Some of the Same Activities
808-10-55-15 This Example illustrates the guidance in Section 808-10-45. Studio A and Studio B agree to jointly participate in the production and distribution of a major motion picture. Studio A will manage the day-to-day production activities and will be responsible for distribution in the United States. Studio B will be responsible for distribution in Europe and Asia. Even though Studio A will be managing the production, the terms of the arrangement state that both studios will share equally in all production costs incurred. Further, Studio A will pay 50 percent of the net profits (that is, revenues less distribution costs) from the United States distribution to Studio B, and Studio B will pay 50 percent of the net profits from European and Asian distribution to Studio A. The studios are responsible for initially funding all distribution costs in their respective locations. For purposes of this example, no license to intellectual property has been conveyed to Studio B.
808-10-55-16 Assume that Studio A and Studio B have the same estimates of ultimate revenue and ultimate participation costs. Both studios estimate that Studio A will owe Studio B net ultimate participation costs of $45 million. Based on the individual-film-forecast-computation method in accordance with Section 926-20-35, Studio A’s current period participation cost expense (and Studio B’s current period participation income) is $7 million in Year 1 following the film’s initial release.
808-10-55-17 Based on an evaluation of the facts and circumstances, during (or at the completion of) production, Studio A records a receivable from Studio B for production costs and a corresponding reduction of its capitalized film costs. Studio A has determined that, considering the guidance on principal versus agent considerations in paragraphs 606-10-55-36 through 55-40, it is the principal for the revenue generated in the United States. Accordingly, it characterizes all of the gross revenue generated in the United States as revenue in its income statement and likewise records all of the associated distribution costs for distribution in the United States. Studio A concludes that
other authoritative accounting literature does not apply, either directly or by analogy, regarding the income statement classification of
Topic 606 does not apply to net participation costs owed to
Studio B.
Studio B because Studio B is not a customer. Studio A also concludes that there is no other authoritative accounting literature that is appropriate to apply by analogy, and, accordingly, Studio A’s accounting policy with respect to participation costs due from and to its production partners is to record net amounts due from production partners for profit shares on sales to third parties as additional revenue and net amounts due to production partners for profit shares on sales to third parties as a cost of sales. Accordingly, Studio A characterizes its Year 1 participation cost expense of $7 million as cost of sales.
808-10-55-18 During production, Studio B records amounts payable to Studio A for production costs and a corresponding amount as capitalized film costs. Studio B has determined that, after considering the guidance on principal versus agent considerations in paragraphs 606-10-55-36 through 55-40, it is the principal for the revenue generated in Europe and Asia. Accordingly, it characterizes all of the gross revenue generated in Europe and Asia as revenue in its income statement and likewise records all of the associated distribution costs for distribution in Europe and Asia. Studio B concludes that other authoritative accounting literature does not apply directly
, either directly or by analogy
, including Topic 606 because Studio A is not a customer, regarding the
income statement classification
presentation of net ultimate participation costs due from Studio A. Studio B has concluded that Studio A is not a customer because Studio A has not contracted with Studio B to obtain goods or services that are an output of Studio B’s ordinary activities in exchange for consideration. Studio B also concludes that other authoritative accounting literature does not apply by analogy, and, accordingly, Studio B’s accounting policy for profit sharing amounts due from and to its production partners is to record those amounts on a net basis in cost of sales. It views those amounts either as additional costs for production and distribution or as a reimbursement of such costs. Accordingly, Studio B characterizes its Year 1 participation cost income of $7 million as a reduction of cost of sales.
808-10-55-19 This evaluation is not intended to illustrate the appropriate revenue recognition requirements for any of the transactions described in this Example or the appropriateness of the conclusions reached on determining whether and how applicable authoritative accounting literature applies directly or by analogy. Rather, those conclusions have been assumed as facts in this Example.
Such an analysis would include, at a minimum, a determination of the applicable authoritative accounting literature, including whether or not the guidance in Topic 606 is applicable.
6. Add paragraph 808-10-65-2 as follows:
Transition and Open Effective Date Information
> Transition Related to Accounting Standard Update No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606
808-10-65-2 The following represents the transition and effective date information related to Accounting Standards Update No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606:
  1. The pending content that links to this paragraph shall be effective for public business entities for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.
  2. The pending content that links to this paragraph shall be effective for all other entities for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021.
  3. Earlier application of the pending content that links to this paragraph is permitted if an entity also has adopted the pending content that links to paragraph 606-10-65-1, including adoption in any interim period for:
    1. Public business entities for periods for which financial statements have not yet been issued
    2. All other entities for periods for which financial statements have not yet been made available for issuance.
  4. An entity shall apply the pending content that links to this paragraph retrospectively to the date of its initial application of the pending content that links to paragraph 606-10-65-1. An entity shall recognize the cumulative effect of initially applying the pending content that links to this paragraph as an adjustment to the opening balance of retained earnings of the later of the earliest annual period presented and the annual period that includes the date of the entity’s initial application of the pending content that links to paragraph 606-10-65-1.
  5. An entity may elect to apply the pending content that links to this paragraph retrospectively either to all contracts or only to contracts that are not completed contracts at the date of initial application of the pending content that links to paragraph 606-10-65-1. A completed contract refers to a contract for which all (or substantially all) of the revenue or expenses were recognized in accordance with guidance that was in effect before the date of initial application. An entity shall disclose whether it has applied this guidance to all contracts or only to contracts that are not completed.
  6. An entity may elect to apply the practical expedient for contract modifications in paragraph 606-10-65-1(f)(4), in accordance with the requirements in paragraph 606-10-65-1(g).
  7. An entity shall provide the disclosures in paragraphs 250-10-50-1 through 50-2 (with the exception of the disclosure in paragraph 250-10-50-1(b)(2)) in the period in which the entity adopts the pending content that links to this paragraph.

Amendments to status sections

7. Amend paragraph 606-10-00-1, by adding the following item to the table, as follows:
606-10-00-1 The following table identifies the changes made to this Subtopic.
Paragraph
Action
Accounting Standards Update
Date
606-10-15-3
Amended
2018-18
11/05/2018
8. Amend paragraph 808-10-00-1, by adding the following items to the table, as follows:
808-10-00-1 The following table identifies the changes made to this Subtopic.
Paragraph
Action
Accounting Standards Update
Date
Public Business Entities
Added
2018-18
11/05/2018
808-10-15-5
Amended
2018-18
11/05/2018
808-10-15-5A through 15-5C
Added
2018-18
11/05/2018
808-10-45-1
Amended
2018-18
11/05/2018
808-10-45-3
Amended
2018-18
11/05/2018
808-10-45-4
Superseded
2018-18
11/05/2018
808-10-55-1
Amended
2018-18
11/05/2018
808-10-55-3 through 55-10
Amended
2018-18
11/05/2018
808-10-55-12 through 55-14
Amended
2018-18
11/05/2018
808-10-55-17 through 55-19
Amended
2018-18
11/05/2018
808-10-65-2
Added
2018-18
11/05/2018
The amendments in this Update were adopted by the unanimous vote of the six members of the Financial Accounting Standards Board:
Russell G. Golden, Chairman
James L. Kroeker, Vice Chairman
Christine A. Botosan
Gary R. Buesser
Marsha L. Hunt
R. Harold Schroeder
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