Rule Atlas
FASB ASC 606: Revenue Recognition: ASC 606 Five-Step Model
Under FASB ASC 606 (IMA / ICMA), revenue Recognition: ASC 606 Five-Step Model establishes the authoritative rules tested on the IMA CMA. A world-class guide to the ASC 606 five-step model for revenue recognition. VoraPrep verifies every threshold, worked table, and practice question below against the current IMA CMA blueprint.
Current Statutory Thresholds & Limits in Effect
Worked Example: Allocating Transaction Price
| Performance Obligation | Standalone Selling Price (SSP) | % of Total SSP | Allocated Transaction Price | Revenue Recognition Timing |
|---|---|---|---|---|
| Software License | $80,000 | 66.67% ($80k/$120k) | $66,667 ($100k * 66.67%) | Point in Time (on delivery) |
| Installation Services | $15,000 | 12.50% ($15k/$120k) | $12,500 ($100k * 12.50%) | Point in Time (on completion) |
| Technical Support | $25,000 | 20.83% ($25k/$120k) | $20,833 ($100k * 20.83%) | Over Time (over one year) |
| Total | $120,000 | 100.00% | $100,000 |
Innovate Software Inc. enters into a contract with a customer to provide a software license, one year of technical support, and installation services for a total price of $15,000. The services are determined to be distinct performance obligations. The standalone selling prices are $12,000 for the software license, $3,000 for the technical support, and $1,000 for the installation. Under ASC 606, how much revenue should Innovate Software recognize for the software license upon its delivery to the customer?
Worked Example: Allocating Transaction Price
Scenario: TechSolutions Inc. enters into a contract to provide a customer with a software license, installation services, and one year of technical support for a total price of $100,000.
- Step 1: Identify the Performance Obligations. TechSolutions determines that the license, installation, and support are three distinct performance obligations.
- Step 2: Determine Standalone Selling Prices (SSP). TechSolutions sells these items separately. The observable SSPs are: Software License: $80,000 Installation Services: $15,000 Technical Support: $25,000
- Step 3: Allocate the Transaction Price. The total SSP is $80,000 + $15,000 + $25,000 = $120,000. The allocation is based on the relative SSP of each PO.
- Allocation to PO = (SSP of PO / Total SSP) * Total Transaction Price
Common IMA CMA Distractors on FASB ASC 606
- 1Watch out for factors that increase the risk of reversal:
- 2The amount is highly susceptible to factors outside the company's control (e.g., market volatility).
- 3A long period of time before the uncertainty is resolved.
- 4The company has limited experience with similar types of contracts.
- 5The company has a practice of offering price concessions.
Frequently Asked Questions: FASB ASC 606
What is the core rule under FASB ASC 606 (Revenue Recognition: ASC 606 Five-Step Model)?
Under FASB ASC 606 (IMA / ICMA), revenue Recognition: ASC 606 Five-Step Model establishes the authoritative rules tested on the IMA CMA. A world-class guide to the ASC 606 five-step model for revenue recognition. VoraPrep verifies every threshold, worked table, and practice question below against the current IMA CMA blueprint.
How is FASB ASC 606 tested on the IMA CMA?
Watch out for factors that increase the risk of reversal: The amount is highly susceptible to factors outside the company's control (e.g., market volatility).
Where can I practice IMA CMA questions on Revenue Recognition: ASC 606 Five-Step Model?
Test yourself instantly with the free playable IMA CMA question on this page, or launch VoraPrep's full IMA CMA adaptive question bank, interactive lessons, and 1:1 exam simulator at voraprep.com/cma.