Discussion:Distribution Rights

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Discussion Forum Index --> Accounting Questions --> Distribution Rights

Cvan (talk|edits) said:

11 May 2009
My client sold their distribution rights to a video game distributor ("XYZ"). The arrangement is XYZ orders the game and pays my client a total of $6, being $1/unit (royalty) plus the production cost of $5 to Microsoft. My client then places the order with Microsoft and pays the $5.

Is it correct to book the $6 as revenue and $5 as COGS and show the remaining $1 as profit? In my opinion my client has no basis to book the $6 as revenue. They sold their distribution rights already. Hence, their income is the $1 royalty only.

Any comments?

Lhhesscpa (talk|edits) said:

11 May 2009
I agree that profit is $1. But disagree with netting revenue and expense. Proper accounting requires that revenues and expenses be stated separately. The distribution rights sale was a separate transaction from the sale of the product or the purchase of it. -- Larry Hess, CPA | Albuquerque, NM

Bm911tax (talk|edits) said:

1 July 2009
For accounting purposes you need to show $6 as revenue. You got it correct.

Ben [1]

AJ (talk|edits) said:

2 July 2009
It is correct to book $6 as revenue and $5 as COGS. You can find more details on gross vs. net in EITF-99-19 and SAB-101
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