Our company sells licenses to use softwares developed by our company. There are few contracts in which payment terms exceed more than one year. However, we provide the software key at once and there is no obligation remains on our part.
Consider this scenario:
Contract date: 20-12-2016
Payment terms: 33% now, 33% in 1 year, 34% after 2 years
My questions is whether we should record whole revue now or should we discount this non-current asset and record revenue on present value of long term receivable receivable.
To elaborate my question:
Say i strike a deal of $ 10M
Option 1: Record $ 10M right away
Options 2: apply discounting on long term receivables (67%) as assuming 10% discount rate as follows:
3.3M * (1.1)^-1 + 3.4M*(1.1)^-2 = 5.8 + 3.3(current) = 9.1M
Therefore recording 9.1M as revenue and recording 0.9M as interest income over the period.
If you need any further clarification on the scenario, please reply.