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Groupon Inc. And Revenue Recognition Issues

1640 Words7 Pages

DATE: September 23, 2015
TO: Professor Stevens
FROM: Briana Nguyen
SUBJECT: Groupon, Inc., and Revenue Recognition Issues

PURPOSE
This report will explore the accounting treatment employed by Groupon, Inc. (“Groupon”) in its revenue recognition for fiscal years 2008 through 2010 as well as the first six months of 2011. Specifically, we will review the following in regard to its initial public offering (IPO) in accordance with FASB’s Accounting Standards Codification (ASC):
• Revenue recognition as a primary obligor
• Revenue recognition as a principal or an agent
• Revision of revenue recognition on gross basis to net basis and effect on revenue and net income
BACKGROUND
In November of 2008, Andrew Mason, Eric Leftkofsky, and Bradley Keywell …show more content…

For example, a spa may offer a service worth $80 for $40, and once the customer pays Groupon $40, they are able to go to the merchant to receive the service worth $80. When a deal is purchased by a subscriber, the gross profit is split between Groupon and the respective merchant: Groupon will keep $20 of what the customer has paid, and the remaining balance goes to the merchant. Striving to “become an essential part of everyday local commerce for consumers and merchants,” the company has made efforts to continue growing their subscriber base, their number of merchant clientele, the number and variety of products, as well as their acquisitions and business development …show more content…

ASC Section 606-10-55 provides that if an entity is a principal and it satisfies a performance obligation, revenue should be recognized in the gross amount that it “expects to be entitled in exchange for [the] goods and services transferred” (606-10-55-37). On the other hand, if the entity is the agent, revenue should be recognized “In the amount of any fee or commission to which it expects to be entitled in exchange for arranging for the other party to provide [the] goods and services” (606-10-55-38). The following indicators provide guidance on whether the entity is an

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