MEMORANDUM

To: Clara View, Controller

From: Your Name, Staff Accountant
Date: April 24, 2019
Subject: General Hospital Contract Revenue Recognition

As requested, I have keenly taken an analysis on the proper recognition of revenue from the sale
of Bon Laser “Bon” to General Hospital. Considering established recognition of revenue
criterion when contracting customers, Insight Inc. (“Insight”) should recognize the revenue as it
transfers the equipment to the customer and not when the contract is merely signed.

The transactions in this contracts considers several international accounting requirements in

recognizing revenue. The following steps shows how to recognize revenue from contracts with
customers: Step 1: Contract(s) establishment with a customer, Step 2: Establishing contractual
performance obligations in the contract, Step 3: Ascertain the purchase consideration, Step 4:
Apportion the purchase consideration in the contract to performance obligation, Step 5: Revenue
is then recognized as the entity delivers the item (FASB, 2014, ASC para. 606-10). The contract
with General Hospital satisfies all the steps; (1, 2, 3, 4, and 5). To meet step 1, contract was
signed on February 2019 that created rights and obligations enforceable in the contract. The
contract also commits Insight Inc. to do performance obligation by delivering the equipment to
General Hospital which meets step 2. Step 3 was fulfilled when the contract was signed with $
950,000 as the purchase consideration. As per the contract’s terms, Step 4 is met when Insights
allocates the purchase consideration in the contract basing on the standalone price quoted on the
contract to the item. To fulfil step 5, Insight recognizes revenue as it transfers the equipment to
General Hospital.

Under step 5, the revenue is recognized by applying appropriate method to ascertain the revenue
for the year 2019 and 2020. Additionally, under this contract, (FASB, 2014, ASC para. 606- 10-
50) provides requirements that results in Insight Inc. producing statement of disclosures to users
of financial statement covering information on nature, value, time, and revenue uncertainty as a
result of contracts with customers. Specifically, information on revenue from contract with
customers, opening and closing balances, contractual obligation performance, judgments and its
changes made while using the provisions on the contracts should be disclosed.

Please feel free to visit me in my office or call me if any more questions or concerns arise.