Accounting Case 5-5

Boston Automation
Systems and SAB 101
Group Members
Shannon Barbour
Jillian Kavanagh
Jean Manning
Steven Penney

Introduction
Boston Automation Systems

Old practice of recognizing
revenue before it is earned

Recognizes losses in the
period when they are
determined
SAB 101
Revenue should not be recognized until it
is realized and earned

Stricter definitions of when a transaction is
complete and when a product / service is
delivered
SAB 101
SAB 101 requires contractual customer
provisions to be satisfied before revenue
can be recognized
Two exceptions:
the sellers remaining performance obligation
is inconsequential or perfunctory
a portion of contract revenue may be
recognized when the seller has substantially
completed or fulfilled the terms of a separate
contact element

SAB 101
contracts include customer acceptance
provisions

Under SAB 101, in most cases, revenue
will be recognized after customers have
accepted the product
Fishers Concerns
organizations revenue recognition policy
will need to be redeveloped to reflect the
new guidelines
guidelines are to be implemented no later
than the fourth quarter of the 2000 fiscal
year
as of the third quarter Boston Automation
Systems has not implemented any new
policies
Fishers Concerns
GAAP requires consistency
Other three quarters of 2000 will need to be
prepared according to new guidelines
financial statements of at least previous year
will need to be prepared with SAB 101 for
comparison purposes
Will have significant time and money costs
to the company

Glendale Division
Selected
Transactions
Trycom, Inc.
Equipment ordered is the standard model
of the divisions main product
Tested before leaving division
No reason to believe that it would not work
in customer facility
Revenue can be recognized upon delivery
White Electronics Company
Equipment ordered is a modified version
of the standard product to fit in a specified
space
Division created a testing chamber
Performance specifications were met
Revenue recognized upon delivery


Silicon Devices, Inc.
Equipment ordered is a modified version
of the standard product to be integrated
into assembly line
Unable to be tested prior to shipping
Customer acceptance required before
revenue recognized

Advanced Technology
Division
Selected
Transactions
Analog Technology, Inc.
Technology previously developed by division
Customer requires specific technical and
product criteria
Performance cannot be verified until installation
occurs
Payment terms: 80% due 30 days after delivery
and 20% due 30 days after customer
acceptance
Revenue recognized in installments
Specialty Semiconductor, Inc.
Customer requires specific technical and
product criteria
Performance can be verified before
installation
Payment due upon installation
Revenue recognized upon customer
acceptance
Micro Applications, Inc.
Customer require specific technical and
product criteria
Specifications can be tested prior to
shipment
Customer obligated to pay 100% of the fee
no later than 90 days after delivery
Revenue is recognized upon delivery
XL Semi, Inc.
Initial customer acceptance occurs at
division before shipment

Revenue recognized upon delivery
Technical Devices Division
Selected
Transaction
Distributors

A sales strategy shift is occurring
Discontinuing direct sales
Sales will only occur through distributors
Distributors will have to increase
inventories significantly

Distributors
To help financing distributors will make
five small monthly payments and one large
payment at end of six months

Revenue will be recognized in installments

Revenue recognition method may change
if payment terms to distributors change

Do we agree with SAB 101?
Yes.
SAB 101 contains much more detail then
the original revenue recognition policy.
Detail helps to eliminate ambiguity with
how and when to recognize revenue.
Is SAB 101 too detailed?
No.
The level of detail in SAB 101 is essential -
financial statements are prepared by and
for more than one person.
Ambiguity in accounting guidelines can
lead to misrepresentation of an
organizations true economic health.
Should the standards be more general?
No.
General is easier to understand but leaves
more room for individual interpretation.
Individual interpretations can lead to
misrepresentation of an organizations
economic position.

Questions