Situation- The business will have deferred revenue of, let’s assume, 100k. The business paid a 10% commission to staff that sold those packages to clients. The business also has a 5% marketing cost overall. This is not a subscription-based business, and therefore, the revenue is recognized as the services are rendered. There is a 12-month expiration policy for clients to use the service they bought or loose it. It’s non refundable upon sale. Historically, 20% will never redeem it.
Owner proposed- will leave inventory to cover the consumable cost + direct labor cost of providing the services post closing. (Preposterous proposal)
Are there standard practices or accounting principles I can leverage in such scenarios, or does this fall under Wild West territory?
This would be debt on balance sheet. If I rendered the services, I should recognize the revenue and the profits related to it. Or do I have to actually use “fair value of the obligation”?
or to make it simple
Deferred revenue- direct sales cost= debit to new owner at closing.
Thoughts?
Deferred revenue! How to account for it?
by a searcher from Washington University in St. Louis
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The challenge is not just the logic, but how to convince the buyer, the seller and their respective advisors. Also, one has to address the EBITDA impact.