{"schema_version":2,"canonical_url":"https://asc.understandingaccounting.org/asc/470/10/#25-recognition","source":"FASB Accounting Standards Codification, Basic View","usage":"Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective.","topic":"470","topic_title":"Debt","subtopic":"470-10","subtopic_title":"Overall","section":{"number":"25","label":"25 Recognition","anchor":"25-recognition","is_sec":false,"groups":[{"block":null,"heading":"Sales of Future Revenues or Various Other Measures of Income","paragraphs":[{"citation":"470-10-25-1","para":"25-1","html":"
An entity receives cash from an investor and agrees to pay to the investor for a defined period a specified percentage or amount of the revenue or of a measure of income (for example, gross margin, operating income, or pretax income) of a particular product line, business segment, trademark, patent, or contractual right. It is assumed that immediate income recognition is not appropriate due to the facts and circumstances. The payment to the investor and the future revenue or income on which the payment is based may be denominated in a foreign currency.
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While the classification of the proceeds from the investor as debt or deferred income depends on the specific facts and circumstances of the transaction, the presence of any one of the following factors independently creates a rebuttable presumption that classification of the proceeds as debt is appropriate:
  1. a
    The transaction does not purport to be a sale (that is, the form of the transaction is debt).
  2. b
    The entity has significant continuing involvement in the generation of the cash flows due the investor (for example, active involvement in the generation of the operating revenues of a product line, subsidiary, or business segment).
  3. c
    The transaction is cancelable by either the entity or the investor through payment of a lump sum or other transfer of assets by the entity.
  4. d
    The investor's rate of return is implicitly or explicitly limited by the terms of the transaction.
  5. e
    Variations in the entity's revenue or income underlying the transaction have only a trifling impact on the investor's rate of return.
  6. f
    The investor has any recourse to the entity relating to the payments due the investor.
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Debt instruments may be issued with both guaranteed and contingent payments. The contingent payments may be linked to the price of a specific commodity (for example, oil) or a specific index (for example, the S&P 500). In some instances, the investor's right to receive the contingent payment (an indexing feature) is separable from the debt instrument. If the indexing feature does not warrant separate accounting under Topic 815 or the instrument does not meet the definition of a derivative under Topic 815, the entire instrument shall be accounted for in accordance with paragraphs 470-10-25-4 and 470-10-35-4.
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If the investor's right to receive the contingent payment is separable, the proceeds shall be allocated between the debt instrument and the investor's stated right to receive the contingent payment. The premium or discount on the debt resulting from the allocation shall be accounted for in accordance with Subtopic 835-30.
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