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Páginas: 18 (4402 palabras) Publicado: 28 de febrero de 2013
1-A succinct statement of the facts of the case
Velocity Cellular Services sells wireless services and products. The Company is planning to promote and market a prepaid phone service plan called “Power Starterpack” as part of its line of service plans to existing wireless subscribers (individuals who already own a cellular phone).
Power Starterpack will provide each subscriber with a newactivation card and a prepaid voucher for a total nonrefundable fee of $200. The prepaid services plan provided additional functionalities as Bluetooth technology (hands-free headset is sold separately), technology that enables the existing cellular phone to make international phone calls and additional memory.
Also, included in the purchase of the Power Starterpack is a prepaid voucher that gives thesubscriber an airtime window of 360 days to use $50 worth of minutes. If there is no activity for a consecutive period of seven months, the subscriber’s account is terminated and no refund is given.
2- A statement or statements of the financial reporting issue (or issues) that is presented in the case.
The case present the financial reporting issue to determine the appropriate method forrecognizing revenue for the prepaid phone service plan called “Power Starterpack”. How does this company account for prepaid fees that are received before services are rendered?
Others issues presented are how recognition of revenue for new activation card, revenues of sells wireless handsets and accessories. Also, how recognition revenues of prepaid voucher for a total nonrefundable fee of $200 andprepaid voucher that gives to the subscriber an airtime window to use $50 worth of minutes.
Customer activation fees are charged when customers connect to operator networks. Although the amounts charged to customers are not usually significant, costs are incurred when connecting customers to a network. Where activation fees are charged, the following accounting issues arise:
* recognitionof revenue for the service provided ( connecting to the network) as a separate product or service
* recognition of the activation fee over the period of the service contract.

3-A discussion of all the alternatives available to report the issue (or issues) discussed in #2 above indicating the authoritative basis.
Although no specific guidance has been published by the FASB related torevenue recognition for prepaid service plan, general criteria for revenue recognition are discussed in the FASB’s Concepts Statements. Statement of Financial Accounting Concepts No. 5, Recognition and Measurement in Financial Statements of Business Enterprises (Concepts Statement 5) identifies two criteria necessary for revenue recognition: the revenue must be realized or realizable and earned. FSACNo. 5 goes on to explain that "revenue are considered to have been earned when the entity has substantially accomplished what it must do to be entitled to the benefits represented by the revenue" and that the two conditions for revenue recognition are "usually met by the time product or merchandise is delivered…." .
FSAC No. 5, paragraph 83 states that “Further guidance for recognition ofrevenues and gains is intended to provide an acceptable level of assurance of the existence and amounts of revenues and gains before they are recognized. Revenues and gains of an enterprise during a period are generally measured by the exchange values of the assets (goods or services) or liabilities involved, and recognition involves consideration of two factors (a) being realized or realizable and (b)being earned, with sometimes one and sometimes the other being the more important consideration.

a. Realized or realizable. Revenues and gains generally are not recognized until realized or realizable. Revenues and gains are realized when products (goods or services), merchandise, or other assets are exchanged for cash or claims to cash. Revenues and gains are realizable when related assets...
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