A GAAP question:. My client is a realtor who owns and operates a multiple dwelling building. In 2015, the client signed a 5 year exclusive agreement with a cable TV company to allow service to be solicited and provided to some 60 apartments. Terms of the contract were: $4,500 to paid up front by the cable company as a "One-Time Fee", plus a percentage of quarterly "GCRs" (gross collected revenues) to be paid after each calendar quarter. Amount received by the client thus far toward GCRs approximate $1,050 per quarter. In order to secure this contract, the client paid a fee of $1,125 to a professional as a negotiating fee.
How is the $4,500 "One-Time Fee" to be treated? Is the entire amount revenue attributable to 2015, since the client gets to keep this money regardless of whether any apartment actually sign up for cable TV service, or is this be treated as deferred revenue to be spread out over the 5 year period?
Likewise, how should the professional fees of $1,125 be treated? Should it be a current expense, or should it be capitalized and amortized over 60 months? Alternatively, if the aforementioned $4,500 is current revenue, then should not the professional fee be allocated in 2 portions;(a) an amount allocated to match the current revenue of $4,500 and (b) the balance to be amortized of the life of the contract.
The computation regarding the professional fee would be as follows: GCR portion approximately $1,050 per quarter for 20 quarters. ($1,050 x 20 = $21,000) plus the one time revenue of $4,500 for a total of $25,500. The portion of professional fees currently expensed would then be $4,500/$25,500 x $1,125 or approximately $200, with the balance ($1,125-$200) or $925 amortized over 5 years.
Does anyone know the proper treatment?
How is the $4,500 "One-Time Fee" to be treated? Is the entire amount revenue attributable to 2015, since the client gets to keep this money regardless of whether any apartment actually sign up for cable TV service, or is this be treated as deferred revenue to be spread out over the 5 year period?
Likewise, how should the professional fees of $1,125 be treated? Should it be a current expense, or should it be capitalized and amortized over 60 months? Alternatively, if the aforementioned $4,500 is current revenue, then should not the professional fee be allocated in 2 portions;(a) an amount allocated to match the current revenue of $4,500 and (b) the balance to be amortized of the life of the contract.
The computation regarding the professional fee would be as follows: GCR portion approximately $1,050 per quarter for 20 quarters. ($1,050 x 20 = $21,000) plus the one time revenue of $4,500 for a total of $25,500. The portion of professional fees currently expensed would then be $4,500/$25,500 x $1,125 or approximately $200, with the balance ($1,125-$200) or $925 amortized over 5 years.
Does anyone know the proper treatment?