Revenue RecognitionMilestone Method

ASC 605-28Highlights

Overview

• This subtopic specifies accounting for research and development deliverables or

• units of accounting that include milestones that are accounted for under the milestone method of revenue recognition.

Scope

• Applies to all entities• Applies to transactions including R&D

deliverables or units of accounting – under which a vendor satisfies performance

obligations over a period of time and – when a portion or all of the consideration is

contingent upon uncertain future events,– except when the guidance in this subtopic

conflicts with guidance elsewhere in Topic 605.

• The guidance in this subtopic is not the only acceptable revenue attribution model for R&D deliverables consideration or unit of accounting consideration contingent upon achieving a milestone.

• A vendor shall apply policies for recognizing deliverable consideration consistently to similar deliverables or units of accounting.

• This subtopic does not address whether an arrangement comprises one or more deliverables or whether multiple deliverables meet the separation requirements (605-25).

Milestone defined

• An event having all of the following characteristics:– There is substantive uncertainty at the date of the

arrangement that the event will be achieved. – The event can be achieved, based in whole or in part,

on either• The vendor’s performance or• A specific outcome resulting from the vendor’s

performance.

– If achieved, the event would result in additional payments being due to the vendor.

Recognition

• Guidance in this subtopic shall be met in order for a vendor to recognize consideration for a deliverable or a unit of accounting – that is contingent upon achievement of a substantive

milestone in its entirety in the period in which the milestone is achieved.

• Even if the criteria in this subtopic are met, a vendor may elect to apply a different policy that results in deferral of revenue relating to some portion of the milestone consideration.

• A substantive milestone is a matter of judgment and must be determined only at the inception of the arrangement.

• To be considered substantive, a milestone must meet all of the following conditions:– It corresponds with the vendor’s performance to achieve the

milestone or the enhancement of the value of the delivered item as a result of the vendor’s performance.

– It relates solely to past performance.• No refund or adjustment based on future performance (penalty or

clawback).

– It is reasonable relative to all of the deliverables and payment terms.

Transition to Update 2010-17

• For years beginning on or after June 15, 2010, pending content is applied prospectively,– Unless the vendor elects to adopt on a

retrospective basis, with required disclosures.• Earlier application is permitted.