Multiple element arrangement

[accountant10]

Company A sells an equipment to Company B as well as an installation service, the equipment is sold in A FOB basis ,
Company C manufactures the equipment for Company A in 6 months.
Company C invoices Company A in a monthly basis,
Company A records those bills as Inventory in process.
Company A recognizes revenue for the equipment at the moment all the risk and rights were transferred to Company B and consequently the cost.
Company recognizes the installation services when it is rendered

Does the aforementioned follow USGAAP, please provide the technical reference.

Thank you in advance

 

[cmesh]

Depends on whether the product and the implementation service qualify as separate units of accounting. To recognize revenue upon delivery of the product, the product must have standalone value to the customer, meaning that either Company A must sell the product to some customers without related implementation services OR the customer could resell the product on a standalone basis. Additionally, if there is a general right of return for the delivered product, then performance of the installation service by Company A must be probable and substantially in the control of Company A.

FYI, this is a link to a page with an application that you can use to help determine whether the product qualifies as a separate unit of accounting:

ASC 605-25 Revenue Recognition, Multiple Element Arrangements, Units of Accounting

 

[Counterofbeans]

Cmesh linked the general revenue recognition standard, but note that this is changing. I expect the new standard to be released in the upcoming months and thank god for that...VSOE is such a silly idea; I'm glad they are changing it.