Question

Maas LLP developed software that helps farmers to plow their fields in a manner that prevents erosion and maximizes the effectiveness of irrigation. Sunny Dale paid a licensing fee of $14,000 for a copy of the software. Although Sunny Dale can use the software as long as it wants, Maas expects that Sunny Dale will use the software for approximately 5 years. Maas does not anticipate any further interaction with Sunny Dale following transfer of the license. How much revenue should Maas recognize in the first year of the contract?

Answer 1

Answer:

The amount recognized as revenue in the first year is $14000

Explanation:

The reason is that Maas LLP has no post sales services agreement to Sunny Dale which means he owes him nothing in benefits so the amount received as a whole is license fee only which gives Sunny Dale the right to use the software. So the amount received must be recognized as revenue for the year.