ASC

ASC 605-20

Services

605 Revenue Recognition

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In brief

IntermediateRevenueRecognitionContingencies and guaranteesSubsequent measurement

After ASU 2014-09 gutted most of legacy Topic 605, ASC 605-20 survives only as the guidance on recognizing a loss (onerous-contract provision) on separately priced extended warranty and product maintenance contracts. A separately priced contract is one whose price is not included in the original price of the covered product. If expected costs of providing the services plus any capitalized incremental cost of obtaining the contract exceed the related unearned revenue (contract liability), a loss must be recognized.

Key points (7)
  • The Subtopic applies to all entities but now covers only separately priced extended warranty and product maintenance contracts (605-20-15-1; 605-20-15-2(a)).
  • It does not apply to guarantees accounted for as derivatives under Section 815-10-15, to ordinary product warranties (other than extended warranty/maintenance contracts), or to financial guarantee insurance contracts under Topic 944 (605-20-15-3).
  • A contract is 'separately priced' when the contract price for warranty protection or product services is not included in the original price of the covered product (605-20-25-1).
  • A loss is recognized when expected costs of providing services plus any asset recognized for incremental costs of obtaining the contract exceed the related unearned revenue (contract liability) (605-20-25-6).
  • Contracts must be grouped in a consistent manner to determine whether a loss exists (605-20-25-6).
  • The loss is charged first against any recognized asset for incremental costs of obtaining a contract (determined under 340-40-25-1 through 25-4), and only the excess is recognized as a liability (605-20-25-6).
  • Revenue recognition for these contracts is now governed by Topic 606; 605-20's revenue and disclosure paragraphs were superseded by ASU 2014-09 (605-20-25-2 through 25-5; 605-20-50-1).

For students. Remember that 605-20 is a remnant: revenue on extended warranties is recognized under Topic 606, and only the loss/onerous-contract rule stays here. The common mistake is applying it to ordinary (assurance-type) product warranties bundled into the product price — those go to Topic 460/606, not 605-20.

separately priced extended warrantyproduct maintenance contractonerous contract lossunearned revenuecontract liabilityincremental costs of obtaining a contractproduct warrantycontract grouping

Machine-generated study aid for ASC 605-20. Check the source paragraphs below.

605-20-00Status

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605-20-05Overview and Background

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605-20-05-1
This Subtopic specifies the accounting for the provision for losses on separately priced extended warranty and product maintenance contracts.

605-20-15Scope and Scope Exceptions

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Entities

605-20-15-1
The guidance in this Subtopic applies to all entities.

Transactions

605-20-15-3
The guidance in this Subtopic does not apply to the following service activities and arrangements:
  1. a
    Guarantees accounted for as derivatives in accordance with Section 815-10-15
  2. b
    Product warranties, except extended warranty or product maintenance contracts. See paragraph 605-20-25-6.
  3. c
    Guarantees required to be accounted for as financial guarantee insurance contracts in accordance with Topic 944 on insurance.

605-20-20Glossary

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605-20-25Recognition

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Separately Priced Extended Warranty and Product Maintenance Contracts

605-20-25-1
Separately priced contracts for extended warranty and product maintenance contracts provide warranty protection or product services and the contract price of these contracts is not included in the original price of the product covered by the contracts.
605-20-25-6
A loss shall be recognized on extended warranty or product maintenance contracts if the sum of the expected costs of providing services under the contracts and any asset recognized for the incremental cost of obtaining a contract exceeds the related unearned revenue (contract liability). Extended warranty or product maintenance contracts shall be grouped in a consistent manner to determine if a loss exists. A loss shall be recognized first by charging to expense any recognized asset for the incremental costs of obtaining a contract, determined in accordance with the guidance in paragraphs
340-40-25-1 through 25-4
for contracts within scope of Topic 606 on revenue from contracts with customers. If the loss is greater than the recognized asset for the incremental costs of obtaining a contract, a liability shall be recognized for the excess.

605-20-50Disclosure

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605-20-S00StatusSEC

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605-20-S00-1
The following table identifies the changes made to this Subtopic.
ParagraphActionAccounting Standards UpdateDate
605-20-S25-1SupersededAccounting Standards Update No. 2016-1105/02/2016
605-20-S25-2SupersededAccounting Standards Update No. 2017-1309/29/2017
605-20-S50-1SupersededAccounting Standards Update No. 2017-1309/29/2017
605-20-S99-1SupersededAccounting Standards Update No. 2017-1309/29/2017
605-20-S99-1AmendedAccounting Standards Update No. 2010-0401/15/2010
605-20-S99-2SupersededAccounting Standards Update No. 2016-1105/02/2016

605-20-S25RecognitionSEC

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605-20-S50DisclosureSEC

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605-20-S99SEC MaterialsSEC

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Related subtopics