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SAB topic 8 - Retail companies
us SEC - Staff Accounting Bulletin Topic 8
A. Sales of Leased or Licensed Departments
Facts: At times, department stores and other retailers have included the sales of leased or licensed departments in the amount reported as "total revenues."
Question: Does the staff have any objection to this practice?
Interpretive Response: The staff believes that FASB ASC Topic 840, Leases requires department stores and other retailers that lease or license store space to account for rental income from leased departments in accordance with FASB ASC Topic 840. Accordingly, it would be inappropriate for a department store or other retailer to include in its revenue the sales of the leased or licensed departments. Rather, the department store or other retailer should include the rental income as part of its gross revenue. The staff would not object to disclosure in the footnotes to the financial statements of the amount of the lessee's sales from leased departments. If the arrangement is not a lease
but rather a service arrangement that provides for payment of a fee or commission, the retailer should recognize the fee or commission as revenue when earned. If the retailer assumes the risk of bad debts associated with the lessee's merchandise sales, the retailer generally should present bad debt expense in accordance with Rule 5-03 of Regulation S-X.
B. Finance Charges
Question: How should such charges be disclosed?
Interpretive Response: As a minimum, the staff requests that the amount of gross revenue from such charges be stated in a footnote and that the income statement classification which includes such revenue be identified. The following are examples of acceptable disclosure:
Example 1
Consumer Credit Operations:
The results of the Consumer Credit Operations which are included in the Statement of Earnings as a separate line item are as follows for the fiscal year ended January 31, 20x0:
Service charges |
$167,000,000 |
Operating expenses: |
|
Interest |
60,000,000 |
Payroll |
35,000,000 |
Provision for uncollected accounts |
29,000,000 |
All other credit and collection expenses |
32,000,000 |
Provision for Federal income taxes |
5,000,000 |
Total operating expenses |
$161,000,000 |
Consumer credit operations earnings |
$ 6,000,000 |
Example 2
Service charges on retail credit accounts are netted against selling, general and administrative expense. The cost of administering retail credit program continued to exceed service charges on customer receivables as follows:
(in millions) |
20x2 |
20x1 |
Percent Increase (decrease) |
Costs: |
|||
Regional office operations |
$ 45 |
$ 42 |
9 |
Interest |
51 |
44 |
13 |
Provision for doubtful accounts |
21 |
15 |
34 |
Total |
$117 |
$102 |
15 |
Less service charge income |
96 |
79 |
22 |
Net cost of credit |
$ 21 |
$ 23 |
(10) |
Net cost as percent of credit sales |
1.4% |
1.6% |
The above results do not reflect either "in store" costs related to credit operations or any allocation of corporate overhead expenses.
This SAB is not intended to change current guidance in the accounting literature. For this reason, adherence to the principles described in this SAB should not raise the costs associated with record-keeping or with audits of financial statements.
C. Impact of a Registrant's Adoption of FASB ASC Topic 606, Revenue from Contracts with Customers
(1) The FASB ASC Master Glossary defines a lease as "an agreement conveying the right to use property, plant, or equipment (land and/or depreciable assets) usually for a stated period of time."
This is a work of the U.S. Government
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