velocity cellular
09-1 Velocity Cellular Case
Power Starterpack is part of Velocity Cellular Services that provides both the wireless services and products (cellular phones) to its clients. At the beginning of a cell phone contract, a cellular phone is sold with a wireless service that will generate cash for the service provider for the length of the contract; making Velocity Cellular Service multiple deliverables. Power Starterpack compromises of a single deliverable because the only service it is providing is the sale of the activation card.
According to ASC 605-25-25-5, “In an arrangement with multiple deliverables, the delivered item or items shall be considered a separate unit of accounting if both of the following criteria are met:
a. The delivered item or items have value to the customer on a standalone basis. The item or items have value on a standalone basis if they are sold separately by any vendor or the customer could resell the delivered item(s) on a standalone basis. In the context of a customer's ability to resell the delivered item(s), this criterion does not require the existence of an observable market for the deliverable(s). This is satisfied in this case.
b. The objective of this Update is to address the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a combined unit.
c. If the arrangement includes a general right of return relative to the delivered item, delivery or performance of the undelivered item or items is considered probable and substantially in the control of the vendor. This is not satisfied.
The activation card should be recognized as a separate deliverable and as a separate unit of accounting according to ASC 605-25.
Power Starterpack is part of Velocity Cellular Services that provides both the wireless services and products (cellular phones) to its clients. At the beginning of a cell phone contract, a cellular phone is sold with a wireless service that will generate cash for the service provider for the length of the contract; making Velocity Cellular Service multiple deliverables. Power Starterpack compromises of a single deliverable because the only service it is providing is the sale of the activation card.
According to ASC 605-25-25-5, “In an arrangement with multiple deliverables, the delivered item or items shall be considered a separate unit of accounting if both of the following criteria are met:
a. The delivered item or items have value to the customer on a standalone basis. The item or items have value on a standalone basis if they are sold separately by any vendor or the customer could resell the delivered item(s) on a standalone basis. In the context of a customer's ability to resell the delivered item(s), this criterion does not require the existence of an observable market for the deliverable(s). This is satisfied in this case.
b. The objective of this Update is to address the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a combined unit.
c. If the arrangement includes a general right of return relative to the delivered item, delivery or performance of the undelivered item or items is considered probable and substantially in the control of the vendor. This is not satisfied.
The activation card should be recognized as a separate deliverable and as a separate unit of accounting according to ASC 605-25.