Accounting Question - Accrual - leads to tax question

[duanecpa]

TP purchases assets of a company. Buyer assumes customer contracts from Seller which, when customer is provided the services and/or goods by Buyer, will generate revenue for the Buyer. Are these customer contracts on the Buyer's books to be classified as revenue or should they be treated as receivables?

[JudyL]

Look to the sale agreement to see if part of this business purchase price had value assigned to those contracts. If it did, that value would be a sec 197 intangible and would be amortized.

If you think about the accounting for these contracts without the complication of the business purchase included, the revenues that those contracts would generate in the future are not recorded on the books until the service or goods are provided because the revenue has not yet been earned. If the contract holder did collect money from customers as a deposit and before the providing the service or goods, then that deposit would be a liability on the company's books and would be called something like "customer deposit" or "unearned revenue".

[duanecpa]

PP allocation

not included in the purchase price allocation unless it is part of non-compete and goodwill.