Candy Maker International Case Summary

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Question 1
There are a couple things to consider in regards to revenue recognition in your situation with Candy Maker International (CMI). First, take into consideration the revenue recognition principle and the matching principle. Then determine whether there are separate units of accounting in the sales agreement, what revenues or expenses should be recognized for the unit or units, and when they should be recognized. In ALI’s case, the agreement with CMI includes multiple deliverables which can be further explained in FASB Accounting Standards Codification (ASC) topic 605-25 (Revenue Recognition – Multiple-Element Arrangements). This covers the issue of whether the multiple deliverables should be accounted as one or multiple separate units of accounting.
Question 2

The sales arrangement between ALI and CMI presents two separate units of accounting. The two unit components are the assembly line system and the installation services. As mentioned above, the sales agreement …show more content…
FASB ASC topic 605-25-25-5 (Recognition) presents the necessary literature to assess this situation. Per ASC 605-25-25-5, if in an arrangement with multiple deliverables, the delivered item or items shall be considered a separate unit of accounting if it meets two specific criteria. ASC 605-25-25-5a states that “the delivered item or items have value to the customer on a standalone basis and 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.” When looking at the case, the first deliverable includes the mixer and molding segment. One must take into consideration whether or not this delivery has value on a standalone basis, which from the facts one can conclude that it does not. The case states that the individual components cannot function

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