Manini Manufacturing

Case 06-5: Manini Manufacturing

In the case Manini Manufacturing, the issue at hand is when revenue should be recognized in a contract that involves multiple deliverables. The contract covers the sale, installation and servicing of one unit of NXPR 101 precision semiconductor manufacturing equipment.

Equipment, Installation, and Service Fees

1) Initial Fee due upon Contract Signing $50,000

2) Delivery of Test Data $150,000

3) Delivery of Equipment (NXPR 101) $300,000

4) Completion of Installation $500,000

Total Equipment and Installation Fee $1,000,000

A vendor should evaluate all deliverables in an arrangement to determine whether they represent separate units of accounting. This evaluation must be performed at the inception of the arrangement and as each item in the arrangement is delivered. The first item in the arrangement is a fee due upon signing the contract. This fee provides no benefit to the customer and would not be considered a separate unit of accounting. The second item in the arrangement is delivery of test data. The test data are the results of extensive factory testing performed by Manini Manufacturing to evaluate the performance of the equipment. Although testing the equipment is an essential part of providing the manufacturing equipment, alone this information does not provide the customer with any value. The third item in the arrangement is the NXPR 101 equipment. This asset does have standalone value of $300,000 and can be resold in the used-equipment market. The forth item in the arrangement is installation of the equipment. The installation service is required to get the NXPR 101 in operating condition and has a standalone basis because it can be performed by third party installers as well as by Manini at a cost of approximately $150,000.

Journal Entries:

1/2/03: (Contract Signing)

Accounts Receivable 50,000 Deferred Revenue – NXPR 101 50,000

1/31/03:...