How the New Revenue Recognition Standard Impacts Food and Beverage Companies

Nonpublic business entities are required to apply the new revenue recognition standard to annual reporting periods beginning after December 15, 2018, and interim periods within annual reporting periods beginning after December 15, 2019—a change that may have far-reaching effects for their financial reporting and internal control systems. 


In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (ASC 606) . This standard, along with subsequent amendments and clarifications issued by the FASB, fundamentally changes how companies across industries will recognize, measure, present, and disclose information about revenue.

Under the new guidance, a company will now have to recognize revenue when it transfers goods or services to a customer, rather than when the risk of loss from the sale of goods or services has passed to the customer. As a result, the new model could lead to very different revenue recognition patterns and amounts.

For nonpublic entities­—which most food and beverage companies are—the new standard goes into effect for annual reporting periods beginning on or after December 15, 2018, and interim periods beginning after December 15, 2019, with early adoption permitted for any period beginning after December 15, 2016.


While the impact of the new standard on food and beverage companies isn’t as drastic as it is for others—such as the technology industry where long-term and multiple-element arrangement contracts are customary and will require significant time to analyze—most companies will still need to spend extra time reviewing their revenue channels for other affected areas to analyze the impact of the new standard. 

All food and beverage companies will need to revisit their financial statements and consider any necessary enhancements to meet the revenue recognition presentation and disclosure requirements.

Following are the key areas food and beverage companies should consider when implementing the new revenue recognition standard.

Incentive Offers 

Companies need to evaluate whether or not the incentives they provide to customers are separate performance obligations. That is to say, whether or not individual goods and services in bundled arrangement can be accounted for separately, with a portion of the total arrangement fee recognized as revenue each time a product or service is delivered, or whether all of the revenue in the arrangement must be deferred and recognized only once the final good or service in the contract is delivered.

Such incentives may be cash-based—such as volume discounts, cash rebates, and coupons—or in the form of free goods or services. If the incentives are identified as separate, companies will need to allocate a portion of the transaction price to the incentivized goods or services. If the value of the incentive is variable, companies must make an estimate based on historical data, budget forecasts, or both. 

Trade Spending

Providing a certain level of product support for your sales channels—trade spending—is part of doing business when you’re a food and beverage manufacturer. The process, however, isn’t without its issues when it comes to financial accounting and reporting.

Under legacy US generally accepted accounting principles (GAAP), trade spending incentives are presumed to be a reduction of revenue. That reduction presumption can be overcome if a company can show it received an identifiable benefit from the trade spend.  

An example of an identifiable benefit would be a good or service that the company would pay for to promote or market their product, regardless of whether or not the customer purchases the company’s product.

Product demonstration costs or advertising are generally viewed as activities that generate identifiable benefits. The amount paid for these types of goods or services also must be representative of fair value. In the event the amount paid exceeds fair value, the excess amount should be netted against revenue.

Then new standard is similar with two key changes:

  • Determination is now at the beginning of the contract, whether or not an identifiable benefit (now referred to as distinct good or service) is received
  • A reduction of revenue will be recognized earlier in some cases because of variability with the distinct good or service (variability in volume estimates, for example)

Under legacy GAAP and the new guidance of ASC 606, items that typically should be netted against revenue include the following:

  • Discounts
  • Volume rebates
  • Manufacturer charge backs
  • Buydowns
  • Slotting fees

Sell-Through Models 

Many food and beverage companies used the sell-through method under legacy GAAP when recognizing revenue from sales to distributors. Under this method, revenue isn’t recognized until the product is sold through the sales channel to the end consumer.

This accounting policy is appropriate when distributors are afforded generous return rights, price protection privileges, or other entitlements that call into question whether the arrangement fee is fixed or determinable—a necessary condition for revenue recognition under legacy GAAP.

Under the new guidelines of ASC 606, revenue is recognized upon transferring control of a good or service to the distributor, regardless of whether or not the arrangement fee is fixed or determinable. However, the amount of revenue recognized may be constrained somewhat to reflect the variable transaction price risk.

This means the new revenue recognition guidance eliminates the sell-through method of revenue recognition and instead requires more judgment in determining the amount of revenue to recognize upon transferring control of goods to a distributor.

Sales Commissions and Other Associated Contract Costs 

Under the new standard, incremental costs of obtaining a contract with a customer are to be capitalized as an asset if the company expects to recover those costs. In some cases, this can mean that the commissions or related sales expenses should be capitalized then amortized evenly over the initial term of the contract. 

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For more information about how the new revenue recognition standard may impact your company, contact your Moss Adams professional.