Expand
When an NFP provides goods or services in exchange for consideration from a customer, ASC 606, Revenue from Contracts with Customers applies. ASC 606 replaces substantially all of the specialized industry guidance previously used to account for various arrangements under US GAAP with a comprehensive, industry-neutral revenue recognition model.
An AICPA audit and accounting guide, Revenue Recognition (AAG-REV), has been issued to assist preparers and auditors with understanding and implementing ASC 606 in the context of various industry sectors. Chapter 7, “Health Care Entities,” contains implementation guidance related to health care revenue transactions, and Chapter 8, "Not-for-Profit Entities," contains implementation guidance for exchange transactions involving entities within the scope of AAG-NFP. For a comprehensive discussion of the guidance in ASC 606, refer to the PwC Revenue from contracts with customers guide (RR).
ASC 606 does not address revenue associated with leases, investment income, or contributions, all of which are accounted for under other standards. If a contract is partially within the scope of ASC 606 and partially within the scope of other guidance, ASC 606-10-15-4 provides a principle for bifurcating the transaction. That principle indicates that if the other guidance specifies how to separate or initially measure one or more parts of a “hybrid” transaction, an entity should apply that separation or measurement guidance first. Application of this framework to certain revenue streams discussed in this section that are part exchange and part contribution is discussed in NP 12.4.3 and NP 12.4.4. Bifurcation might need to be considered in some revenue contracts that include occupancy rights, such as certain student housing contracts or continuing-care retirement community resident agreements. If such a contract is deemed to include a lease component, an NFP would apply the guidance in ASC 842, Leases, to separate the portion that would be accounted for under ASC 842 from the portion accounted for under ASC 606.
The core principle that underlies revenue recognition is described in ASC 606-10-05-3.

ASC 606-10-05-3

The core principle of this Topic is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

In order to implement that principle, the standard lays out five broad steps:
  • Step 1—identify the contract with the customer (see RR 2)
  • Step 2—identify performance obligations (see RR 3)
  • Step 3—determine transaction price (see RR 4)
  • Step 4—allocate transaction price to performance obligations (see RR 5)
  • Step 5—recognize revenue (see RR 6)
This section discusses considerations regarding applying ASC 606 (and, to the extent applicable, any contribution element) to the following revenue streams that are often found in NFPs:
  • Tuition, housing, and dining plans
  • Patient service revenue
  • Continuing-care retirement community contracts
  • Dues or memberships
  • Ticket sales

12.4.1 Higher education – tuition, housing, and dining revenue

Tuition, housing (room), and dining (board) are perhaps the most common revenue sources for higher education institutions. Interpretive guidance to assist preparers and practitioners with applying ASC 606 to revenue contracts for tuition and housing is contained in AAG-REV 8.6.01 through AAG-REV 8.6.69. Key considerations are highlighted below.
  • Step 1—identify the contract

    For higher education institutions, specific considerations in identifying the contract include (1) establishing the date of contract inception, and (2) determining the number of contracts (for accounting purposes) between the institution and a particular student.

    When evaluating whether and when an agreement with a student creates enforceable rights and obligations (i.e., a contract), an institution must consider its practices and processes related to admission and registration of students and the payment of nonrefundable deposits to secure enrollment and housing. According to AAG-REV 8.6.05, the Financial Reporting Executive Committee (FinREC) believes that payment of a nonrefundable deposit to secure enrollment or housing generally gives a student the right to receive the instruction or housing, respectively, and obliges the institution to stand ready to provide such instruction or housing, thereby creating an enforceable right.

    However, in evaluating whether payment of a deposit triggers contract inception under the revenue standard, institutions should also consider whether substantive termination penalties exist if the student forfeits the deposit. According to ASC 606-10-25-4, a contract does not exist if parties have the unilateral enforceable right to terminate a wholly unperformed contract without compensating the other party. If a student can withdraw during the initial portion of an academic term and lose only their nonrefundable deposit, entities should assess whether the loss of the nonrefundable deposit is a substantive termination penalty. We believe if the forfeiture of the nonrefundable deposit is not substantive (e.g., the amount of the forfeited deposit is inconsequential compared to the amount of the contract), the contract term would not commence until performance begins (see RR 2.7). These matters are discussed in AAG-REV 8.6.03 through AAG-REV 8.6.05.

    Entities must also consider whether a single contract with a student exists for accounting purposes, or whether there are multiple contracts. It is common for higher education institutions to enter into separate agreements with a student, often at or near the same time, for tuition, housing, dining, and other services. If the economics of the arrangements are interrelated, they may need to be combined and accounted for as a single contract for purposes of applying ASC 606. If an institution provides a “discount” to a student based on an evaluation of total “need” or the “total cost of attendance,” combining these contracts could result in a different pattern of revenue recognition or a different allocation of revenue between classes of revenue (e.g., tuition and housing), either as presented on the statement of activities or as disclosed in the notes, than would be the case if the multiple contracts were accounted for individually.

    Interpretive guidance on the criteria for combining contracts is contained in AAG-REV 8.6.12.

    Other matters related to evaluating whether a contract exists under the revenue standard include assessing a contract’s collectability (AAG-REV 8.6.06 through AAG-REV 8.6.11 and AAG-REV 8.6.39 through AAG-REV 8.6.41) and grouping contracts into portfolios when making the collectability assessment (AAG-REV 8.6.13 through AAG-REV 8.6.14).
  • Step 2—identify performance obligations

    Some contracts may involve a single performance obligation, while others contain multiple performance obligations. For example, depending on its terms, a contract for a student dining plan might embody a single performance obligation (i.e., a stand-ready obligation to provide “unlimited” meals during a term) or multiple performance obligations (i.e., a commitment to deliver a specified number of meals during a term). In the latter situation, the standard provides guidance for determining whether multiple performance obligations in an arrangement are distinct or should be combined. In addition, as noted in Step 1, multiple contracts may need to be combined and evaluated as a single contract in some circumstances, in which case the contract consideration will be combined but, in many cases, the promises in the individual contracts will be distinct. Applying ASC 606’s guidance for identifying performance obligations and whether they are “distinct” requires judgment. AAG-REV 8.6.15 through AAG-REV 8.6.19 discusses considerations related to determining whether tuition, housing, and dining are distinct services promised by the institution, or whether they represent a single performance obligation (and thus, need to be combined).
  • Step 3—determine transaction price

    For higher education institutions, specific considerations in determining the transaction price include the sources of payment of the consideration under the contract, reductions to the published price, and reductions of revenue for potential refunds.

    The amounts to which the entity is entitled under the contract could, in some instances, be paid by parties other than the student (the customer). For example, institutions of higher education typically receive federal financial aid on behalf of students. In those cases, the assessment of the transaction price includes both the consideration paid directly by the student and consideration received from external parties.

    Information about a school’s cost of attendance for tuition, fees, housing, and meal plans for a given academic year is typically listed on its website or in its academic catalog. While sometimes the stated prices will prove to be the transaction price for its arrangements with a student, in other situations the school will adjust that price. The transaction price in a contract is based on the specific terms entered into with each student. These matters are discussed in AAG-REV 8.6.20 through AAG-REV 8.6.31.

    If an institution provides a student with a reduction to the published, or “list” price, the substance of the reduction and the rationale for offering it will determine whether the reduction should affect the transaction price (and, in turn, revenue). A reduction associated with a scholarship awarded by the school reduces the amount of consideration the school expects to be entitled to and, therefore, is a reduction of the transaction price. A reduction offered in exchange for services provided (for example, certain work-study aid packages awarded to students or tuition remission programs for dependents of a school’s employees) might need to be reported as compensation expense, rather than as a reduction of revenue.

    Many institutions have a tuition refund policy that allows students the right to withdraw with a full or partial refund during a stipulated period after classes have begun. In such situations, the consideration is considered “variable” at the contract’s outset, because it is contingent on the occurrence (or non-occurrence) of a future event (i.e., the student’s decision to withdraw). Consideration is variable if there are uncertainties surrounding the price or quantity, or contingencies regarding realization (such as a sale with a right of refund). In general, variable consideration needs to be estimated at the inception of the arrangement and included in the transaction price. Until the withdrawal period lapses, the institution would need to estimate the amount of potential tuition refunds and recognize revenue at a reduced amount with a corresponding refund liability. An institution could estimate the potential refund liability on a portfolio basis—that is, by aggregating its tuition contracts into a portfolio (or portfolios based on different student populations) and estimating the aggregate refund potential of the portfolio (rather than for individual contracts). These matters are discussed in AAG-REV 8.6.32 through AAG-REV 8.6.38.
  • Step 4—allocate the transaction price

    When multiple performance obligations are associated with a single contract or if multiple contracts are combined into a single contract, institutions will need to allocate the transaction price among the performance obligations. This allocation is made based on the relative standalone selling prices of each performance obligation (the price at which the institution would sell a good or service separately), as described in ASC 606-10-32-29.

    If a standalone selling price is not observable, the institution must estimate it. The standard provides examples of suitable methods for estimating standalone selling price. In doing so, institutions will also need to determine how any reductions in amounts charged, such as financial aid awarded to a student as a scholarship, should be allocated, pursuant to ASC 606-10-32-36. That guidance states that except when an entity has observable evidence in accordance with criteria outlined in ASC 606-10-32-37 that the entire discount relates to only one or more, but not all, performance obligations in a contract, the entity shall allocate the discount proportionately to all performance obligations in the contract. AAG-REV 8.6.42 through AAG-REV 8.6.46 discusses these matters. We believe that institutions should consider their policies, practices, and contracts with students to evaluate whether they meet the requirements to allocate the discount (financial aid package) to some but not all of the performance obligations in a contract.
Example NP 12-4 illustrate the allocation of the transaction price and a proportionate allocation of the discount among performance obligations.
EXAMPLE NP 12-4
Allocation of transaction price among performance obligations
A school offers a variety of 12-week courses. The standard tuition for each course is $2,200, which is determined to be representative of the standalone selling price as it represents the price the school would charge to similar students under similar circumstances. In one particular course, students are provided with two textbooks (normally sold in bookstores for $150 each) on the first day of class at no additional charge.
How should the transaction price be allocated between the performance obligations?
Analysis
There are two performance obligations in this arrangement – one to provide instructional services and one to provide the textbooks. The contract's transaction price—the amount of consideration to which the school expects to be entitled—is $2,200, which must be allocated between the two performance obligations based on their relative standalone selling prices. The two textbooks together have a standalone selling price of $300. The standalone tuition for the school's 12-week course is $2,200. In this situation, the student is entitled to goods and services with a total standalone selling price of $2,500 in exchange for paying $2,200. The difference is considered a discount that must be allocated proportionally between the books and tuition based on their relative standalone selling prices. The portion of the transaction price allocated to the books and tuition would be as follows:
Performance obligation
Standalone selling prices
Relative percentage
Allocation of transaction price
Instruction
$2,200
88%
$1,936
Textbooks
300
12%
264
$2,500
100%
$2,200
  • Step 5—recognize revenue

    Revenue is recognized when (or as) control of the promised goods or services transfers to the customer. AAG-REV 8.6.47 through AAG-REV 8.6.56 discuss the notion of “transfer of control” in the context of tuition and housing contracts, and whether that occurs “over time” or at a “point in time.” The determination of the timing of revenue recognition is not an accounting policy election. ASC 606 contains specific criteria for assessing whether control transfers at a point in time or over time. For most institutions, academic services and housing services will be satisfied over time, and sales of goods (e.g., books, apparel and other merchandise, athletic tickets, meals) will be satisfied at a point in time.

    When a performance obligation is satisfied over time, the institution must also identify the pattern in which the benefits transfer to the customer (student) in order to develop a measure of the institution’s progress toward satisfying the performance obligation. For most higher education institutions, progress is measured using the proportion of time passed to the duration of the arrangement; other measures of progress include the proportion of costs incurred to date to estimated total costs or some other physical output measure.
Example NP 12-5 illustrates the concepts of point-in-time versus over-time recognition.
EXAMPLE NP 12-5
Point-in-time vs. over-time revenue recognition
A school offers a variety of 12-week courses. In one particular course, students are provided instruction over the 12-week period, along with two textbooks, which are provided on the first day of class. The arrangement has two performance obligations—one for providing instructional services and one for providing textbooks—with a transaction price allocated to each of $1,936 and $264, respectively.
When should revenue associated with each performance obligation be recognized?
Analysis
The pattern of transfer of control for the textbooks and the instruction differs. The $264 of revenue associated with the textbooks would be recognized at the point in time when the books are transferred to the student (generally on the first day of class).
The $1,936 of revenue allocated to the course instruction would be recognized over the period of time that the instructional services are provided to the student. Because the student receives that benefit simultaneously with the instruction being provided and the level of instruction is consistent over the 12-week period, a reasonable measure of progress would be the passage of time. Thus, revenue for the instruction would be recognized straight line over the 12-week period.

12.4.1.1 Recognizing revenue from nonrefundable prepayments

In many circumstances, institutions receive deposits or other nonrefundable payments from students, for example, to hold a spot in a dormitory or in the incoming class. Despite the fact that the payment is nonrefundable, revenue is not recognized at the time the payment is received. Doing so would ignore the fact that the institution may not yet have a contract with the student (as discussed under step 1 in NP 12.4.1) or, even if a contract exists, the institution has not yet transferred control of any goods or services.
If the non-refundable payment relates to a contract, the subsequent accounting will depend on the extent to which the student exercises its rights. If the student enrolls and registers for classes, the school would apply the deposit against the student’s obligation to pay tuition, fees, or other amounts due. However, if the student fails to enroll, he or she forfeits the deposit. When a customer does not exercise all of their rights or options in an arrangement, this is referred to as "breakage."
ASC 606 provides specific guidance on how entities should recognize revenue associated with these expired rights. If an NFP expects breakage, the revenue associated with the anticipated breakage should be taken into income proportionately based on the pattern of rights that are exercised by customers. If the anticipated breakage is “all or nothing”—that is, there is no proportional expiration of rights or no ability to estimate the customer’s decision—the NFP should recognize revenue when the likelihood of the customer exercising its rights becomes remote.
Example NP 12-6 illustrates a situation when breakage income is estimated based on the proportional expiration of rights.
EXAMPLE NP 12-6
Recognizing breakage revenue
100 students enrolled at University and each student purchases a meal plan that entitles them to 150 meals during the term for a nonrefundable fee of $600. The right to any meals that a student does not consume by the end of the term will expire. University expects that 10% of the meals will not be consumed, based on history with similar meal plans.
How should University recognize revenue for the unused meals?
Analysis
University estimates that 90% of the meals will be consumed, and that 10% will expire. Therefore, it expects revenue from meals provided of $54,000 ($600 x 100 students x 90%) and estimated breakage of $6,000 ($600 x 100 students x 10%). The ratio of breakage to sales is 0.11 ($6,000/$54,000). For each meal sold, University would be entitled to recognize a proportionate amount of breakage income.
In practice, most entities will simply reflect breakage income as an adjusting entry at the end of the accounting period. For example, if 100 meals were consumed in the reporting period, the entity would recognize $400 of revenue from actual sales of meals ($600 / 150 meals = $4 per meal; 100 meals consumed x $4 per meal = $400), along with $44 of breakage income ($400 x 0.11). The total reported revenue from meal sales would be $444.
For more information on accounting for “breakage,” see RR 7.4.

12.4.2 Health care revenue transactions

NFP health care providers have unique considerations in applying ASC 606 because of the involvement of third-party payers in most revenue transactions and the fact that providing care to patients who cannot pay is an intrinsic aspect of their business model. Chapter 7 of AAG-REV contains healthcare-specific interpretive guidance.
Aspects of applying the five-step model in ASC 606 to revenue from health care services arrangements that may be particularly challenging or complex are highlighted below.
  • Step 1—identify the contract

    Two particularly complex areas regarding the identification of contracts for health care providers are (1) the determination of the counterparty to the contract, and (2) whether a contract is deemed to exist for purposes of the ASC 606 model (and therefore whether revenue can be recognized).

    Many health care revenue transactions involve multiple parties: the patient, the physician who orders health care services on behalf of the patient, the healthcare organization that provides the health care services, and a third-party payer who pays the provider on behalf of the patient. A fundamental conclusion reached in the AICPA interpretive guidance is that the "contract with the customer" (for purposes of applying ASC 606) refers to the arrangement between the health care provider and the patient (see AAG-REV 7.6.46). Separate contracts between health care providers and third-party payers, which establish amounts to be paid on behalf of a patient, are not “contracts with customers” under ASC 606, but must instead be considered in determining the transaction price for the goods or services provided under the contract between the patient and the health care provider.

    When a health care organization (HCO) is aware of significant credit risk of a customer at the inception of the contract (for example, a patient that is uninsured or underinsured), the HCO must consider those implications in its evaluation of whether the customer is committed to perform its obligations under the contract (i.e., to pay for services rendered). The interpretive guidance describes how HCOs can apply two ASC 606 concepts—implicit price concessions and a portfolio approach—when evaluating whether services provided to high credit risk patients qualify as contracts for which revenue can be recognized under the model. This discussion begins at AAG-REV 7.6.06.
  • Step 2—identify performance obligations

    Beginning at AAG-REV 7.2.01, the interpretive guidance discusses general considerations related to identifying the performance obligations in health care contracts, including the notion of “significant integration” of services. For example, in coordinating a patient’s care during an inpatient stay, a hospital provides a significant service of integrating the goods or services promised in the contract into a bundle of goods and services that represents the combined service for which the patient has contracted. A patient undergoing knee replacement surgery is contracting for the outcome of the replaced knee, not for the individual procedures and supplies used during either the surgery or the hospital stay. Therefore, in many instances, health care providers conclude that that the goods and services are not separately identifiable and thus should be combined as one performance obligation.
  • Step 3—determine transaction price

    The amounts to which the entity is entitled under the contract could, in some instances, be paid by parties other than the customer. For example, hospitals typically receive payments from insurers on behalf of patients. In those cases, the assessment of the transaction price includes both the consideration paid directly by the patient and the consideration received from the external parties.

    Providing care to patients who may not be able to pay is an intrinsic part of the health care business model. According to ASC 606 concepts, by knowingly entering into contracts with customers who are significant credit risks, and customarily accepting amounts that are less than the contractually-stated price, an HCO demonstrates a willingness to accept a lower price in exchange for its services than it is otherwise entitled. This is one example of “variable consideration,” which is one of the more complex areas of ASC 606. Consideration is “variable” if there are uncertainties surrounding the price or quantity, or contingencies regarding realization (such as potential retroactive adjustments, discussed below). In general, variable consideration needs to be estimated at the inception of the arrangement and included in the transaction price. The estimate is subject to a constraint if management is unable to conclude that it is probable that a significant reversal of revenue will not occur in the future (if the uncertainty underlying the variable consideration is resolved unfavorably).

    Potentially uncollectible amounts are considered an implicit price concession (a form of variable consideration), which reduces the transaction price (i.e., revenue). Such anticipated uncollectible amounts should not be reflected as bad debt expense. This discussion begins at AAG-REV 7.6.19.

    “Third-party settlements” is the term used to refer to the estimates of potential retroactive adjustment of revenue associated with portfolios of Medicare or Medicaid patient contracts (see discussion beginning at AAG-REV 7.6.44). A separate discussion beginning at AAG-REV 7.6.73 focuses on estimating performance-based bonus or penalty payments under programs that require providers to share risk with the Center for Medicare and Medicaid Services.
  • Step 5—recognize revenue

    Revenue is recognized when (or as) control of the promised goods or services transfers to the customer. Beginning at AAG-REV 7.5.01, the interpretive guidance discusses the notion of “transfer of control” in the context of health care services, and whether that occurs “over time” or at a “point in time.” The determination of the timing of revenue recognition is not an accounting policy election. ASC 606 contains specific criteria for assessing whether control transfers at a point in time or over time.

    When a performance obligation is satisfied over time, the provider must also identify the pattern in which the benefits transfer to the customer (patient) in order to develop a measure of its progress toward satisfying the performance obligation. For example, this measure might be based on the proportion of costs incurred to date to estimated total costs, the proportion of time passed to the duration of the arrangement, or some other physical measure (output). The interpretive guidance also discusses these determinations in the context of health care services, noting that judgment may be required when identifying the pattern of transfer.
Other matters discussed include:
  • grouping contracts of patients, residents, or members into portfolios that are used in step 1 and step 3 (see AAG-REV 7.7.01)
  • presentation (of contract assets and liabilities) and disclosure requirements (see AAG-REV 7.7.16)
  • capitalizing or expensing costs incurred in acquiring contracts with customers, primarily by continuing-care retirement communities and prepaid health plans (see AAG-REV 7.7.61).

12.4.2.1 Continuing-care retirement communities (CCRC) revenue transactions

A separate discussion beginning at AAG-REV 7.6.109 provides interpretive guidance on applying the ASC 606 model to resident agreements entered into with CCRCs. Unlike many other healthcare arrangements, CCRC resident agreements are long-term contracts that normally cover the remainder of a resident’s life. Complex issues encountered when applying ASC 606 include identifying the performance obligations (including material rights), estimating the transaction price (including adjustments for refundable fees and potential financing components), and the pattern over which revenue should be recognized.

12.4.3 Revenue from dues and memberships

NFPs such as clubs, associations, and professional societies will charge dues to members, sometimes in exchange for providing specified tangible or intangible benefits, for example:
  • journal or magazine subscription
  • discounted or free continuing professional education classes, conferences, and seminars
  • discounted or free tickets to seats at performing arts events
  • discounted products or services
  • access to locked (behind-the-paywall) website content or a library
  • networking opportunities
NFPs with dues-paying members must evaluate whether dues represent exchange transactions, nonexchange transactions, or a combination of the two. If members receive no significant benefits, the dues payments are nonexchange transactions that are accounted for as contributions in accordance with the guidance in NP 6.
If some benefits are provided to members (e.g., a magazine, the right to purchase tickets or books at a discount, discounted admission fees) but their value is not commensurate with the amounts paid, the dues payments must be apportioned into exchange and nonexchange components for revenue recognition purposes (see NP 12.3). The NFP should first determine the fair value of the exchange portion of the transaction, with the residual (excess of the resources received over the fair value of the exchange portion of the transaction) reported as contribution revenue under the ASC 958-605 model. In some cases, it may be difficult to measure the benefits members receive, and judgment may be required. ASC 958-605-55-12 provides a table of indicators to assist in determining the exchange and nonexchange portions of dues in these situations.
Question NP 12-1 illustrates the consideration of whether dues are an exchange transaction or a contribution.
Question NP 12-1
A library offers memberships for dues of $250. The dues raised are used to renovate the library. Members are acknowledged in an advertisement in the local paper, but no benefits of substance are provided. Members of the community at large may use the library free of charge.
How should the library account for the dues?
PwC response
The library should account for the dues as contributions because the members are not entitled to any benefits. In this example, both members and nonmembers enjoy the same privileges.
In the statement of activities, the exchange and nonexchange elements of dues do not have to be displayed separately. They can be presented within a single line, if desired. However, if the amounts recognized under ASC 606 are material, they must be separately disclosed (for example, in the notes to the financial statements), consistent with ASC 606’s requirement to present or disclose revenue from contracts with customers separately from other sources of revenue.

12.4.3.1 Application of ASC 606 to membership or dues revenue

According to AAG-REV 8.6.75, the Financial Reporting Executive Committee (FinREC) believes that membership dues (excluding any portion determined to be a contribution) generally should be considered an exchange or reciprocal transaction in which the member receives something of value and in return pays the NFP for the benefits of membership. Thus, they would be accounted for under ASC 606 as revenue from contracts with customers.
Interpretive guidance on applying ASC 606 to revenue contracts involving membership dues or subscriptions is contained in AAG-REV 8.6.70 through AAG-REV 8.6.98.
Membership dues often entitle the member to a package of benefits. Under step 2 of the ASC 606 five-step model, if a specific individual element of the member benefits is not distinct, then that element (benefit) should be combined with other promised goods or services until the NFP identifies a bundle of promised goods or services that is distinct (that is, general membership benefits), in accordance with ASC 606-10-25-22. These matters are discussed in AAG-REV 8.6.80 through AAG-REV 8.6.86.
One type of performance obligation that can present unique challenges is a “material right.” A material right is created when, as a result of entering into a contract, customers obtain an option to purchase future goods or services at a discount. For example, a membership organization might provide its dues-paying members with access to discounted pricing on products and services. If so, that right becomes a separate performance obligation to which a portion of the transaction price will ultimately need to be allocated. The member is effectively paying in advance a portion of the price they would otherwise pay for the additional goods or services they are likely to purchase. That revenue will be recognized when the future purchases are made or, if no purchases are made, when the right expires. NP 12.4.1.1 discusses the recognition of revenue associated with expired rights (i.e., breakage). Evaluation of whether material rights have been established that represent a separate performance obligation will require the exercise of judgment. Material rights are discussed in AAG-REV 8.6.86, AAG-REV 8.6.92, and AAG-REV 8.6.96 to AAG-REV 8.6.97. RR 7.4 provides additional information.
An NFP may require a nonrefundable prepayment prior to performing—for example, a lifetime membership or subscription. Despite the fact that the payment is nonrefundable, revenue is not recognized at the time the payment is received. Doing so would ignore the fact that the NFP has a performance obligation to transfer (or stand ready to transfer) goods or services in the future. If the obligation of the NFP is simply to stand ready to transfer benefits over time, the prepayment would be recognized over the term of the membership (i.e., be time based). Assuming that the obligation is satisfied over time, AAG-REV 8.6.95 states that revenue would be recognized over an appropriate time period (such as the life expectancy of the member or subscriber). If a portion of the prepayment represents a material right, revenue would be recognized as described in the previous paragraph. Generally, prepayments would represent contract liabilities.
For more information regarding nonrefundable upfront fees, see RR 8.4.

12.4.3.2 Gross vs. net revenue when dues are shared

Many national and regional professional societies establish separate sections, groups, chapters, or other forms of local units, which operate within certain geographical regions or within certain disciplines. Often, there will be some sharing of membership dues between the national and local section or group. In some cases, the section or group receives part of its funding from dues received by the national organization; alternatively, the local organization may collect and process members' dues payments and remit a portion to the national organization. When such dues payments are exchange transactions accounted for under ASC 606, it raises the question of whether the collecting organization should recognize the full amount of dues collected as its revenue, with an expense reflected for the portion remitted to the other organization; or whether the collecting organization should recognize as revenue only the portion of dues that it will retain. RR 10 provides guidance in making these determinations. The terms of the affiliation agreement between the national organization and local unit should also be considered.

12.4.4 Revenue from ticket sales

Ticket sales represent an important source of revenue for performing arts organizations such as orchestras, opera companies, ballet, theater, choral, and similar organizations. As exchange transactions, these are accounted for under ASC 606. Ticket revenue should be recognized when the entity has satisfied its performance obligation, that is, when the performance has been held. The revenue from sales of "season" tickets and subscriptions should be allocated to each performance covered by the subscription based on their relative stand-alone selling prices. Advance ticket sales would result in reporting a contract liability (representing the entity's obligation to transfer goods or services to a customer for consideration already received).
Many performing arts companies designate certain performances as "gala," "opening night," or similar special events and charge substantially higher ticket prices for those performances than for regular performances. The additional increment to the ticket price is usually designated as a contribution. Such tickets would normally be accounted for as part ticket sale (exchange) and part contribution, with the revenue from each portion being recognized in accordance with the regular rules for that category of revenue. See NP 12.3 for further discussion of the framework for allocating a transaction between contribution and ASC 606 revenue components. For additional discussion related to ticket sales for special events, see AAG-NFP 5.110 to AAG-NFP 5.114.
As discussed in AAG-NFP 5.111, the Financial Reporting Executive Committee (FinREC) believes that if a special event is scheduled to take place after the financial statement date, the contribution portion of the amount received for ticket sales prior to the end of the reporting period is presumed to be conditioned on the event taking place, unless the donor explicitly waives the condition.
Example NP 12-7 illustrates the accounting in such situations for a ticket sale that is part exchange and part contribution.
EXAMPLE NP 12-7
Ticket sale—part exchange / part contribution
Performing Arts Center (PAC) sells special $500 opening night tickets in December for a performance that will take place in January. The normal ticket price for a similar seat thereafter is $50.
PAC’s reporting year ends on December 31. How should PAC’s financial statements reflect the revenue from sales of these tickets?
Analysis
The resources received are partially for an exchange transaction—a ticket to a performance—and partially a contribution. The “normal” selling price of the ticket is $50. The amount of the contribution received is the excess of the resources received over the ticket’s value ($500 - $50 = $450).
For each ticket sold in December, PAC’s financial statements would reflect $50 of contract liability (for the prepayment of resources for the exchange portion) and $450 of refundable advance (for the contribution portion). The contribution is considered conditional (and thus, would not be recognized in income) until the performance is held. As discussed at NP 6.6.1, it is not appropriate to assess the probability of whether the performance will take place when evaluating whether the contribution portion is conditional.
When the performance takes place in January, the contract liability would be reclassified to exchange revenue, and the refundable advance would be reclassified to contribution income. Unless PAC explicitly or implicitly indicated that the contribution element of the ticket was intended to be restricted for a particular purpose, the contribution would increase net assets without donor restrictions.
If at the time of the ticket sale, the patron had been notified that only the normal value of the ticket would be refunded in the event the performance was cancelled, and the patron agreed to purchase the ticket under those terms, it would be reasonable to conclude that the donor waived the implicit condition that otherwise would exist. If that was the case, PAC’s financial statements would have reflected $450 of contribution revenue for each ticket sold in December.

PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

Expand Expand
Resize
Tools
Rcl
Add to favorites
Please ensure
that you select
Print Background (colors and images) when printing.
CONTINUE
PwC image modal

This content is copyright protected. It is for your own use only - do not redistribute. These materials were downloaded from PwC's Viewpoint (viewpoint.pwc.com) under license.

Warning 2

✕

Welcome to Viewpoint, the new platform that replaces Inform. Once you have viewed this piece of content, to ensure you can access the content most relevant to you, please confirm your territory.

Viewpoint allows you to save up to 25 favorites.

Consider removing one of your current favorites in order to to add a new one.

Go to favorites

Are you sure you would like to remove this page from your list?

Yes
You are already signed in on another browser or device.
Click Continue if you want to automatically close other logged in sessions and continue. If you want to manually check for other active logged in sessions first, please select Cancel to go back to the previous page.
Need some help? Contact us
signin option menu option suggested option contentmouse option displaycontent option contentpage option relatedlink option prevandafter option trending option searchicon option search option feedback option end slide
✕

Hello and welcome to Viewpoint

Your go-to resource for timely and relevant accounting, auditing, reporting and business insights. Follow along as we demonstrate how to use the site

Before we start.

Choose your preferred language below.