Replies to post #13282 on Value Microcaps Junior Energy

[CPTMatt]

Revenue from software licenses is generally allocated evenly over the period of the license.

IE if the customer signed a contract to pay me $24,000 for a 2 year software license I would recognize $1k of revenue every month starting on the first effective month of the license.

That is typically how revenue is recognized for fixed price maintenance agreements etc work as well. You pay us $XYZ for our services over ___ time period.

That is as opposed to percentage of completion revenue recognition for something like a construction project where revenue is recognized every month as a % of how complete the project is to being finished.

Usually companies will recognize revenue as soon as it is earned as opposed to when the customer is billed. The difference just ends up in the Unbilled on the balance sheet. Sometimes small jobs like time and material are where revenue is recognized upon agreement of the customer of work completion and invoicing has taken place (completed contract revenue method).

Note - I'm a finance guy and not an accountant and generally dislike accounting so take it for what it's worth.

[Bobwins]

Here is the revenue recognition verbage from their annual audited statement.

Consulting, training and other services, revenue is recognized when teh services are performed, the amount to be paid by the customer is fixed and determinable, the collection of fees is probable and the cost can be measured.

Licensing of software products revenue from software licenses is recognized when the Corporation has an executed license agreement with the customer(or customer accepts license agreement at time of intial installation) the software has been delivered, the amount of the fees is fixed and determinable and the collection of fees is probable.

For contracts with multiple elements(e.g.licenses, maintenance, services, training, enhancements and support) revenue is allocated to the elements at fair value and recognized based on delivery and according to milestones or deliverables in the contract.

I bolded the last paragraph because I believe many of the contracts they sign would fall under this category. I think this is fuzzy enough that the company could claim delivery of the licenses upon signing as long as they were part of a complete package of services and the contract signing was specifically mentioned in the contract as a deliverable and billable upon signing the contract.

Have they delivered the software for the revs they show in Q2? Don't know. Since it's a qtrly and not the annual report, the auditors didn't prepare the numbers. So it might get corrected in the annual but by then, they will likely have completed most of the contracts so it will be a moot point.

I couldn't find the detail on the receivables that you mentioned in your earlier post. Where did you find it?

Bobwins