Hi there, I have the following question regarding a revenue sharing arrangement that our company has entered into: Scenario/Facts We have an asset in Company A (A) which has been recognised and capitalised in A. We invoice Company B (B) 1/3 of the total value of the asset in A. Reason for this is to provide a form of funding for the asset in A, and in return B will receive a share of A's future revenues. My question is: How will the initial transaction of A invoicing B be accounted for in A? The income is not Revenue in nature, but instead it creates a liability for A to pay a share of their future revenue to B. Invoice DR: Trade receivables CR: ??? Payment by B DR: Bank/Cash CR: Trade receivables Your expertise will be appreciated.
Revenue Sharing Arrangements
Answers
It is not a trade receivable.
Company B is sharing 1/3 cost with Company A
The cost subsidy received in A should be credited against the asset cost so the final cost to A is 2/3 of what was spent.
You depreciate the asset in A based on the net cost.
Are you sharing revenue with B or gross margin?
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Accounting