Current Scenario

SAB Guidelines (Excerpts from SAB 101 related to current scenario) (Change/No Change in accounting policy of the company) Revenue cant be recognized until it is realizable and earned. So, Delivery is an important part to recognize revenue and as per guidelines: Delivery: Delivery is not considered to have occurred unless the product has been delivered to customers' place of business. (Change)

Product revenue recognized upon shipment

Cost of warranty is estimated when revenue is recognized.

If the sellers remaining performance obligation is inconsequential or perfunctory, then any related future cost must be accrued and expensed when revenue is recognized. (No Change) Portion of the contract revenue may be recognized when the seller has substantially completed or fulfilled the terms of a separate contract element. Pending additional accounting guidance on multiple element revenue arrangement, the SEC indicated that that it will be accept any reasonable

Service revenue are provided or ratably over the period of the related contract, as applicable and are based upon amounts charged when such elements are separately sold.

FISHERS CONCERNS
Ef fects of SAB 101s guidelines about customers acceptance and unfulfilled seller obligation on the companys revenue recognition practices. SAB 101 has to be implemented from the 4 th quarter itself. So, time was a constraint. To maintain consistency, the books of accounts has to modified for the first quarters also. So, this process may lead to huge expenditure on cost and also involve lot of time.

GLENDALE DIVISION
Trycom, Inc. White Electronics Company Silicon Devices, Inc.

TRYCOM, INC.
Order for Standard Model of divisions main product Sales clause includes customer-acceptance clause. Before shipping the equipment to Trycom, the division demonstrated the equipment shipped met the required specifications

SAB GUIDELINES
Acceptance provisions based on seller-specified objective criteria
If the seller demonstrates that the product meets the specified criteria before deliver y to the customer, these provisions should be accounted for as Warranties in accordance with ASC450,Contingencies. If the seller demonstrates that the product meets the published specifications and that the cost of correcting potentially defective goods can be reliably estimated based on a histor y of similar transactions, revenue should be recognized on deliver y, assuming all other revenue recognition criteria are met. So, Revenue should be recognized on Deliver y

WHITE ELECTRONICS
Order of Standard model modified to fit into a space of specific dimensions, while meeting vendor specifications. Could reject the equipment if the equipment did not conform to specifications and dimensions Glendale created a testing chamber of exact same dimensions as specified by the customer. Results were successful

SAB GUIDELINES
Acceptance provisions based o n seller-specified objective criteria Revenue should be recognized on deliver y Acceptance provisions based o n Customer -specified o bjective criteria

Formal customer sign -of f is the best evidence that customer -specified objective acceptance criteria are met. However, if the seller can reliably demonstrate that the product meets the customer specified criteria before formal customer acceptance (for example, through historical experience with similar customers in similar environments), it may be possible to recognize revenue when title and the risks and rewards of owner ship are transferred to the customer if all other revenue recognition criteria have been met. So, revenue should e recognized on deliver y Revenue will be recognized on Deliver y

SILICON DEVICES, INC.

Ordered a version of standard product modified as necessary to be integrated into the customers new assembly line. Also should meet the vendor specifications with regard to performance. Glendale designed a equipment meeting the need. However, it was unable to replicate the new assembly line conditions in the testing

SAB GUIDELINES
Acceptance provisions based on seller-specified objective criteria Acceptance provisions based on Customer -specified objective criteria If the seller is unable to test the customer acceptance criteria before product deliver y and installation, the SEC staff believes that revenue recognition should be deferred until the acceptance criteria are met . Revenue should be recognized when customer acceptance is received.

ADVANCED TECHNOLOGY DIVISION

Analog Technology, Inc. Specialty Semiconductors, Inc. Micro Applications, Inc. XL Semi, Inc.

ANALOG TECHNOLOGY, INC.

Ordered equipment that would be integrated into a larger production line that included other manufacturer's equipment. Include customer-specific technical and performance criteria. Unable to demonstrate that the equipment would meet the conditions Payment terms were 80% due 30 days after delivery, and 20% due 30 days after customer acceptance.

Revenue should be recognized upon customer acceptance.

SPECIALT Y SEMICONDUCTORS, INC.

Contract included a number of customer -specific technical and performance criteria. Product was tested in the division to demonstrate that the equipment met all the specified criteria Revenue recognized upon customer acceptance

MICRO APPLICATIONS, INC.

Contract included a number of customer -specific technical and performance criteria. Product was tested in divisions facility Customer was obliged to pay 100% of the fee no later than 90 days after delivery regardless of whether installments had occurred.

Revenue will be recognized upon delivery.

XL SEMI, INC.
Equipment sold were extensively tested throughout the manufacturing process. Initial customer acceptance took place at divisions facility prior to shipment. Payment 90% on delivery and 10% on final acceptance Revenue will be recognized upon delivery.

TECHNICAL DEVICES DIVISION

Sales will only occur through distributors Distributors will have to increase inventories significantly To help financing distributors will make five small monthly payments and one large payment at end of six months Division had not contractually agreed to take back any excess inventories of mechanical testing devices, the divisions past generous practice of allowing dealer return excess inventory led nearly all dealers to believe that there was little risk to them

SAB GUIDELINES
Consignment-type transactions SAB 101 states that if the buyer doesnt pay the seller at the time of sale but rather is obligated to pay at a specified date and buyers obligation to pay is contractually or implicitly accused until the buyer resells the product or subsequently consumes or uses the product. So, Revenue shall be recognized when payment is received(installments).

REVENUE RECOGNITION GUIDELINES

Yes, I agree with conclusion and guidelines set forth in SAB 101 . The guidelines are much more rigid and facilitate better disclosure than earlier. No, the accounting standards shouldnt be expressed in general terms because it decreases the reliability of the data and comparison between the firms becomes dif ficult.