ACCT7102 Individual Case Study Assignment: Revenue Recognition: Acme Software Solutions

3.   Use of Generative Artificial Intelligence (AI).

This assessment task evaluates students'abilities, skills and knowledge without the aid of generative Artificial Intelligence (AI). Students are advised that the use of AI technologies to develop responses is strictly prohibited and may constitute student misconduct under the    Student Code of Conduct.

4. Late Submission.

An assignment (for which no extension has been granted) submitted after the due date and time, will incura late submission penalty. The penalty is at the rate of 5% (0.4 of a grade) of the total available marks for that particular piece of assessment, for each calendar day or part thereof that the item is overdue. Late assignments may be submitted through TurnItIn since all assignments automatically have a time/date stamp of when they are submitted. However, please contact the course coordinator if you are submitting a late assignment.

5. Length.

The maximum word limit is strictly 1200 words (excluding a reference list and any figures and tables).  Any  material  exceeding  the  word  limit  will  not  be  read  and  the  mark  for  the assignment will be based on the material up to the point where the word limit was exceeded. The total number of pages, including Appendices, should not exceed 10 pages.

6. Referencing Style.

You are required to use the APA (seventh edition) style for in-text citations and your

reference list.  Details  of  the  APA   (7   ed.)   referencing  style  are  available  from  the

Library  guide  at: https://guides.library.uq.edu.au/referencing/apa7. It is critical that the referencing style is consistently applied.

7. Format of Assignment.

The assignment is to be prepared as a Word document using 12 point font with 1.15 line spacing, and 2.54cm margins (left, right, top and bottom). The questions may be included as headings and will  not  be  included  in  the word  count. Please  include  your full  name  and student number as part of the file name, e.g., ‘347185_Kathleen Herbohn’ .

8. Submission.

The assignment is to be submitted through TurnItIn, which is available in a separate case study assignment submission  folder on  the   course’s blackboard  website.     If  you   experience problems uploading your assignment before the due date please contact AskIT for help, and continue  to  try  to  upload  the  assignment  until  you  are  successful.  A  link  to  the  AskIT instructions   on   TurnItIn    is    as   follows:    <https://www.library.uq.edu.au/ask-it/turnitin-assignments>. Note  that  assignment  submission  is  a  three-step  process  and  it  is  your responsibility to check the assignment preview and confirm that the assignment has been successfully submitted. You will need to keep a copy of the Submission ID as proof you have submitted the assignment. You can submit as many times as you wish, and only the latest submission will be marked.

(The facts below are to be used in answering ONLY Questions One and Two).

On 1 March, 2024 Acme Software Solutions entered into a contract with one of its major customers, Mr Joshua Jarvis. The two-year contract transfers a software licence for “No Sweat Software”  (Acme  Software  Solution’s  best-selling  product),  as  well  specifying  that  Acme Software  Solutions  will  perform  an  installation  service  and  provide  unspecified  software updates  and  technical  support  (online  and  telephone)   over  the  two-year  period.     The installation service includes changing the web interface for each type of user (for example, marketing, inventory management and information technology). The installation service is routinely  performed  by  other  entities   and  does   not  significantly   modify  the  software. Additionally, the software remains functional without the updates and the technical support.

Although  Mr  Jarvis  has  purchased  the  licence,  installation  service,  unspecified  software updates and technical support together, Acme Software Solutions sells them separately to customers as well. In fact, over half of the company’s revenue is derived from separate sales of the licence, installation service and technical support.

Acme   Software   Solutions   is   a   large   Australian   company   and   so   complies   with   the requirements of AASB 15 ‘Revenue from Contracts with Customers’ .

Identify the number of performance obligations contained  in the contract between Acme Software Solutions and Mr Jarvis. Provide explanations to support your answer.

(Hint: Your answer should discuss the requirements of AASB 15 and how they apply to the facts of the case).

The accounting standard AASB 15 requires that revenue allocated to a performance obligation is recognised when (or as) the performance obligation is satisfied. A performance obligation is satisfied when the customer obtains control of that good or service (para. 31, AASB 15).

REQUIRED:

For each performance obligation identified in Question One, explain with reference to AASB 15 whether revenue would be recognised by Acme Software Solutions at one point in time, or over the course of the two-year contract.

When AASB 15 became effective for reporting period beginning on or after 1 January 2018, it changed existing accounting practice. In particular, it changed the way in which revenue was recognised, measured and disclosed (i.e. accounting effects). Since revenue  is an important component of reported earnings,AASB 15 potentially influenced reported earnings.

Assume that compliance with AASB 15 reduced the total reported earnings of Acme Software Solutions. (Note: This question does not relate to the facts of the case and is to be answered more generally).

REQUIRED:

PART A (4%):

Would this reduction in reported earnings create potential incentives for the managers of Acme Software Solutions to manage earnings upward?

Explain using Agency Theory and two examples of potential contracts between Acme Software Solutions and its internal and external stakeholders.

PART B (4%):

“Generally, earnings can be managed by using accounting accruals and/or managing the timing of real transactions.”

Do you agree with this statement? Justify your answer with reference to at least two high- quality academic journal articles.*