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Revenue Sharing Arrangements

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.

Answers

Len Green
Title: Performance Improvement Consultant and E..
Company: Haygarth Consulting LLC
LinkedIn Profile
(Performance Improvement Consultant and ERP Strategist, Haygarth Consulting LLC) |

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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