Hello, All! I am trying to determine the proper way to account for the following scenarios in a new business: Scenario 1: a) We purchase several thousand depreciable assets off of a customer and determine a total "credit" or "discount" amount equal to the book value of all of the assets being purchased b) We subsequently "rent" these assets back to the customer at a flat monthly rate per asset for the duration of the contract (essentially a subscription service) c) The aforementioned "credit/discount" mentioned above is netted against the monthly rate to compensate the customer for the sale of the assets. This credit/discount is incurred over time. As an example, on a 10 year contract, the credit/discount amount is incurred monthly against the monthly rate over the course of the first 3 years of the contract until the total credit/discount amount is applied, then the remaining 7 years of the contract are unburdened) d) As the purchased assets fully depreciate, these assets are replaced with new assets produced by our business (assuming the age of the assets purchased vary, so only a fraction will need to be replaced each month) Question: How do we account for these assets when assuming ownership (and the subsequent replacements) and how do we account for the credit/discount (contra-revenue?, liability?, offsetting entries?) Scenario 2: a) A customer commits to a contract for the subscription service, but all assets must first be produced by our company since the customer does not currently own any of the assets. b) The production of the assets will be booked as a capital expense and the revenue stream will remain the same monthly rate per asset (as mentioned in scenario 1). No credit/discount involved in this scenario, only consistent monthly revenue based on the total number of assets under contract. Question: How will the Revenue Recognition work in this case if the majority of the cost is incurred up front (production and delivery) but the same monthly payments are received in perpetuity (assuming contract renewals)? Any help would be greatly appreciated! I'm a relatively new CPA, so I need the assistance of the more experienced accounting geniuses out there! Thank you!
