a.

Describe the differences in revenue recognition between product sales and after-sale
services. How does the company recognize revenue for consignment sales? For products
sold on a subscription basis? How is service revenue recognized?
Revenues from product sales are commonly recognized when title to the risk of
loss passes to the buyer. Consignment sales do not generate GAAP revenue until the
goods are sold to the final buyer. The company recognizes revenue on products sold on
a subscription basis payable over the contractual time period. Service revenues are generally
recognized payable over the life of the service contract as Intuit provides the services earned.
b. Some of the companys sales involve multiple element arrangements. In general, what
are these arrangement? How does the company account for such sales?
Multi-element contracts involve the simultaneous sale of multiple products and/or services. Intuit
bundles software products and then allocates and defers revenue for the undelivered elements
based on their vendor-specific objective evidence of fair value (VSOE). VSOE is the price
charged when that element is sold separately. They allocate revenue based on the relative fair
value of each element and recognize that revenue when it is earned for that element.
c. Intuit reports $685 million of research and development expense, up from $618 million in
the prior year. i. what kind of research activities would we expect for a company like
Intuit? ii. Given the kind of research activities described in part i, how does the
accounting for Intuits R&D costs differ from the way that those costs would have been
accounted for had Intuit used IFRS for financial reporting?
i.
Enhancements of existing products. The company is also likely trying to update
technology platforms.
ii.
Accounting for development might be different depending on whether Intuit can
identify Specific products, track the costs, and whether a market exists for the new
products. If the costs meet these requirements, they are to be capitalized and
amortized over the useful lives of the intangible assets created. Based on what we
know about Intuit, it is likely that the company is not undertaking basic research, but
rather modifying and improving existing products. As such, these expenditures might
well qualify for capitalization under IFRS. In that case, the company would aggregate
the development costs and report them as an intangible asset until the new product is
sold. Then the intangible assets would be amortized over the useful lives of the
intangible assets created.
d. Intuits earnings per share (EPS) is $2.83 on a diluted basis, compared with its basic EPS of
$2.89. What factor(s) accounts for this dilution?
Diluted earnings per share report the EPS under the assumptions that all convertible
securities are converted and all options are exercised at the earliest possible opportunity.
For Intuit, this involves stock options and restricted stock awards. There is no EPS
numerator effect for these options and awards as net income is not affected by the options
exercise. But the denominator increases by 6 million shares that would be issued if all the
stock options were used.