ASC 720-978

Real Estate—Time-Sharing Activities

720 Other Expenses

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In brief

IntermediateRecognition Industry-specific Revenue Inventory and PP&E

This subtopic governs how a time-share seller accounts for other expenses of time-sharing activities — chiefly selling and marketing costs and subsidies of the owners association. The core rule is that all costs incurred to sell time-sharing intervals are expensed as incurred unless they qualify for capitalization as costs to obtain a contract under ASC 340-40-25-1 through 25-4, and seller payments of dues, maintenance fees, or subsidies of owners association losses are likewise expensed as incurred.

Key points (7)

All costs incurred to sell time-sharing intervals are charged to expense as incurred unless they specifically qualify for capitalization under paragraphs 340-40-25-1 through 25-4 (720-978-25-1).
Costs that must be expensed include costs to induce potential buyers to take sales tours (e.g., telemarketing call centers), all costs of unsuccessful sales transactions, and all sales overhead such as on-site and off-site sales office rent, utilities, maintenance, and telephone (720-978-25-2).
Advertising costs are accounted for under Subtopic 720-35; direct incremental costs of tour fulfillment, such as airline tickets to bring customers to a tour location, are expensed at the time the tour takes place (720-978-25-2).
Seller payments of dues or maintenance fees on unsold intervals are expensed as incurred, except when accounted for as incidental operations during holding periods under 978-330-35-3 through 35-6 (720-978-25-3).
Seller payments of additional amounts to subsidize owners association losses are charged to expense as incurred (720-978-25-3).
If the seller is contractually entitled to recover all or part of its subsidy from the owners association, a receivable is recorded only if recovery is probable and measurable with reasonable reliability (720-978-25-3).
A time-share seller typically forms the owners association, appoints its board during sellout, and often has an affiliate manage the project (720-978-05-3).

For students. Exam traps here are the presumption of expensing: students often assume heavy selling and marketing outlays in time-share projects can be capitalized as project costs, when only incremental costs meeting ASC 340-40-25-1 through 25-4 qualify, and tour-generation, failed-sale, and sales overhead costs never do. Also remember a subsidy receivable from the owners association requires recovery to be both probable and measurable with reasonable reliability.

time-sharing intervals selling and marketing costs costs to obtain a contract owners association seller subsidy tour fulfillment costs maintenance fees and dues recoverability of subsidy

Machine-generated study aid for ASC 720-978. Check the source paragraphs below.

720-978-00Status

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720-978-00-1

The following table identifies the changes made to this Subtopic.

Paragraph	Action	Accounting Standards Update	Date

Time-Sharing	Amended	Accounting Standards Update No. 2014-06	03/14/2014
Undivided Interest (2nd def.)	Superseded	Accounting Standards Update No. 2014-06	03/14/2014

978-720-25-1 through 25-3	Amended	Accounting Standards Update No. 2014-09	05/28/2014

720-978-05Overview and Background

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720-978-05-1

This Subtopic addresses real estate time-sharing recognition issues for other expenses. Other expenses may include selling costs, seller subsidies, and owners association costs.

720-978-05-2

Time-share projects typically incur significant operating costs, such as costs of property taxes, repairs and maintenance, and reservation systems. Time-share owners are responsible for paying for the costs of owning their intervals. Because there are many time-share owners for a given project, a centralized mechanism generally is used to collect each owner's share of those costs of ownership and to pay for operating costs.

720-978-05-3

A time-share seller typically forms an owners association to manage the day-to-day operations of a project. Time-share owners pay assessments to the owners association. The activities of an owners association are governed by its bylaws and by a board of directors. Typically, an owners association will hire a manager to handle the day-to-day operations. Often, an affiliate of the original time-share seller is hired by an owners association to manage a project. Because the time-share seller owns a majority of units at the beginning of the sellout of a project, it typically will appoint members of the owners association's board of directors.

720-978-05-4

Selling and marketing costs are significant in relation to sales revenue, and sales incentives and inducements are common.

720-978-15Scope and Scope Exceptions

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Overall Guidance

720-978-15-1

This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 978-10-15.

720-978-25Recognition

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Selling Costs

720-978-25-1

All costs incurred to sell time-sharing intervals shall be charged to expense as incurred unless they specifically qualify for capitalization under paragraphs

340-40-25-1 through 25-4

720-978-25-2

Examples of costs that do not meet the requirements in paragraphs

340-40-25-1 through 25-4

for capitalization, and that shall therefore be charged to expense as incurred, include all costs incurred to induce potential buyers to take sales tours (for example, the costs of telemarketing call centers); all costs incurred for unsuccessful sales transactions; and all sales overhead such as on-site and off-site sales office rent, utilities, maintenance, and telephone expenses. Advertising costs shall be accounted for in accordance with Subtopic 720-35. Direct incremental costs of tour fulfillment, such as costs of airline tickets to bring customers to a tour location, shall be charged to expense at the time the tour takes place.

Seller Subsidies

720-978-25-3

During early stages of project sellout, there are typically not enough dues-paying time-sharing interval owners to support the financial obligations of the owners association. Often a time-share seller, for a limited period of time, subsidizes the operations of the owners association rather than paying the dues or maintenance fees on the time-sharing intervals that it owns (that is, the unsold intervals in the project). Subsequent to that period, the time-share seller pays dues or maintenance fees on the time-sharing intervals that it owns. Payments by the seller of dues or maintenance fees, except when accounted for as incidental operations during holding periods under paragraphs

978-330-35-3 through 35-6

, shall be charged to expense as incurred. Payments by the seller of additional amounts to subsidize losses shall be charged to expense as incurred. If a seller is contractually entitled to recover from the owners association all or a portion of its subsidy, the seller shall record a receivable only if recovery is probable and measurable with reasonable reliability.