What is Significant financing component?
In short
When the timing of payment gives the customer or the seller a significant benefit of financing, for example payment two years after delivery, the transaction price is adjusted for the time value of money.
Key takeaways
- A practical expedient lets sellers ignore financing when the gap between payment and transfer is one year or less.
- Interest is presented separately from revenue from contracts with customers.
- Advance payments made for reasons other than financing, such as securing supply, don't count.
Where it's tested
FAR: Revenue Recognition — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
Under ASC 606, revenue from a performance obligation should be recognized over time if which of the following is true?