Memorandum
To: Cluckin’ Hen
From:
Re: Recognizing Revenue for Licensing
Description: The issue that will be discussed in this memo is whether or not we should recognize the
revenue from the licensing of merchandise we have partnered with for a film. Since the film has not yet
been released yet, we will have to determine to recognize revenue before or after it is finished. It will be
shown in this memo how revenue should not be recognized until after the film is finished.
Evaluation: GAAP dictates that “Revenue should ordinarily be accounted for at the time a transaction is
completed.” The difficulty in determining when our revenue should be recognized is that our side of the
agreement has already been satisfied. Our partner’s side has been completed in the sense of the licensing
agreement has been established; however, their film for which our selling of merchandise comes from has
yet to be finished. According to GAAP, “An entity shall not recognize revenue from licensing
arrangement to market film-related products until it releases the corresponding film.” Because of this, the
film will have to be released before we can recognize our revenue.