Revenue Recognition (Topic 606) At Salesforce.Com, Inc Harvard Case Solution & Analysis

Revenue Recognition (Topic 606) At Salesforce.Com, Inc Case Study Help

Accounts Receivable

A decrease of accounts receivable in the company is good because it shows that the receivables from the customers have been transferred into cash, which means a decrease in accounts receivable will increase the cash in the balance sheet, so, in short; the change will only happen at just one side of balance sheet, because decrease in accounts receivable will increase the company’s cash flow.

While on the other side, an increase in accounts receivable might be a good for the company in the case when its sales are increasing as compared to the previous year, but it might be a negative sign for the company if its sales remain same and accounts receivable continue to increase. An increase in the accounts receivable when the sales remain same, indicates that the cash generating power of the company is going down, which leads towards severe cash problems for the company, in near future.

Prorate Revenues

The salesforce.com prorated some of the revenues over time, because they are longer than 12 months, which means that these revenues belong to more than one financial accounting period, so, according to the revenue recognition standard; these revenues must be proportionally distributed according to their weight that have been recognized ,to release their performance obligation, so the financial position of the salesforce.com must follow the consistency in it.

Cost of Revenues

The cost of revenues of the salesforce.com on the income statement, includes the:(Mark E. Haskins, 2019)

1. Cost of subscription and support revenues, which are primarily related with the services’ delivery.
2. The cost associated with the capacity of data center.
3. Depreciation of equipment and computer software.
4. Lease payments.
5. Overhead allocation.
6. And, the fees paid to the third parties for the use of their technologies, to provide services to the ultimate customers.

Full Retrospective Method

For transitional purposes; the new standard introduces a new fixed-term contract. Using the convenient practical methods available in the migration option; the concept of completed contracts will be used, which will help in simplifying the renewal of contracts or reducing the number of contracts to be renewed. The contract is valued retrospectively, in order to determine whether it is entered at the beginning of the oldest proposed period, while the cumulative effect method is used to evaluate the contract on the date of the first claim.

Under IFRS and the US GAAP; the definition of “full or entire contract” is different. Both definitions are based on existing revenue recognition requirements, but the IFRS definition focuses on delivery / transfer of identified goods or services, while the US GAAP definition focuses on the revenue’s recognition. Differences in definitions may result in differences in the total number of contracts to be resubmitted under the new standard. Generally, under the US GAAP; a completed contract results in fewer contracts, which meet the definition of a completed contract.(KPMG, 2016).

An entity shall repeat each period in its financial statements before the date of the first application. An entity recognizes the cumulative effect on equity of transposing the new standard (usually the profit or loss reserve) at the beginning of the oldest proposed comparison period. Organizations that choose to apply the standard retrospectively must also provide information during the comparison period, required by the new standards. The only exception is the exemption provided by the Practical expedient 4.

Entities should comply with the disclosure requirements in the event of a change in the applicable accounting policy, including the adjustments to the items in the financial statements and the amount of earnings per share concerned. Entities that apply the new standards retrospectively are not required to disclose the effect of changes in accounting policies on the first components of their annual financial statements and the amount of earnings per share.

Revised Revenue Recognition Rule

Under the new revenue recognition rule; the capitalized amount will consist of the sales commission that are directly paid to the employees who are related with sales force. In addition to this, the capitalized amount includes the:

1. Amounts that are paid to the salesforce.com’s employees separated than the direct sales force employees that have been earned through the incentives from the sales under the annual compensation plans.
2. Amounts in the form of commission that have been paid to the salesforce.com’s employees under the renewal of subscriptions and support based contracts.
3. The amount associated with the taxes belong to the sales team’s payroll, fringe benefits amount that is associated with the salesforce.com’s employees and the payment to the lessor of an asset.
4. And, the fees paid to the emerging market partners in which the salesforce.com has a limited presence.

Due to the adoption of new revenue recognition rule; the previously reported financial positions of the company for the period, January, 31, 2018 will get impacted by the accounting general entry mentioned in the Exhibit 1 of the document..........................

This is just a sample partical work. Please place the order on the website to get your own originally done case solution.

Related Case Solutions & Analyses:

Jet Propulsion Laboratory Smartix: Swinging for the Fences Fortress Investment Group Attorney-Client Privilege Rise of Kmart Corporation 1962-1987 Saga of Prince Jefri and KPMG (D): When Are Chinese Walls Enough Omar Ishrak: Building Medtronic Globally Yataro Iwasaki: Founding Mitsubishi (A), Portuguese Version SoundCloud: A Case Study of How SoundCloud Derived “Place Surplus” in Berlin Stack brewing: a little brewery in the big Nickel