Digital Academy – B2B (DA) has entered into an agreement with a third party to help them build a leading digital academy in Asia. DA will license its range of campus intellectual property (campus curriculum, business processes, operating platforms, etc) to the third party in exchange for three years of licensing fees. DA will also provide strategic and operational support to transfer knowledge and to train the employees of the third party to establish and run the Digital Academy. Following is a listing of service provided, with the corresponding fees: Year 1 Advisory Fee:
View complete question Digital Academy – B2B (DA) has entered into an agreement with a third party to help them build a leading digital academy in Asia. DA will license its range of campus intellectual property (campus curriculum, business processes, operating platforms, etc) to the third party in exchange for three years of licensing fees. DA will also provide strategic and operational support to transfer knowledge and to train the employees of the third party to establish and run the Digital Academy. Following is a listing of service provided, with the corresponding fees: Year 1 Advisory Fee: estimated at $819,450.70 for Year 1 based on the support provided by DA to set up the Digital Academy- please see table below. DA will be paid on the actual hours of advisory work incurred during Year 1. Invoice will be generated the end of each quarter based on of Year 1 Advisory fee. Adjustment will be made on the last invoice to ensure YTD invoiced amount agree to the YTD actual hours of advisory work. Licensing Fee: Licensing fee per year is calculated as the maximum of the Annual Minimum Commitment and 10% of the annual revenue on a per-participant, percourse basis from the Digital Academy. Licensing fees will be invoiced at the end of each quarter based on of yearly minimum commitment. DA will include any additional revenue share amounts in the next year first quarters invoice. Annual Minimum commitment is as follows: $300,000 in Year 1, $400,000 in Year 2, $500,000 in Year 3 Maximum cap on licensing fees is as follows: $629,129 in Year 2 and $943,693 in Year 3 DA might send instructors to facilitate the set up of the Digital Academy and to ensure the necessary knowledge transfer from DA instructors to local instructors. DA will provide $500,000 credit for using of DA instructors. Additional instructor fees will be invoiced at the end of each quarter for the actual expense. The third party can purchase any additional standalone my DA license and assessments at the volume discount schedule below: o 0-200 $400 per license o 200-1000 $250 per license o 1,001-5,000 $200 o Over 5,000 $150 Questions: 1. Please propose the revenue recognition methodology for this agreement under ASC 606: # of performance obligations, amounts, revenue recognition rules, etc. Please describe any assumptions made. 2. Any concerns/suggestions for accounting operations? 3. Is there any tax impact you suggest we consider regarding this agreement? Please describe your thought process. Income Share Agreement- B2C DAs student can choose to finance his tuition via Income Share Agreements (ISA) instead of paying tuition upfront. For a student who chooses to pay via an ISA, he enters into an enrollment agreement with DA. At the same time, he also enters into an Income Share Agreement with DA to pay tuition over 48 months and the monthly payment is calculated as 10% of his annual income, assuming the annual income is above $40,000. Monthly payments will stop once the student pays back 1.5 times tuition (1.5* tuition), calculated as 11% interest rate. During any time of the 48 months, if the students annual income drops below $40,000, monthly payment will stop and will only resume if the annual income increases to $40,000 and above. Payment obligation ends if more than 96 months elapse starting 3 months after the course start date. At the same time, DA enters into Forward Purchase Agreements with an Investment Management Company to sell the ISA receivables to the investors. The students are grouped into Cohorts of approximately 20 students for each cohort, based on ISA starting dates. Students under ISA are required to pay back Investors monthly at 10% of their income in 3 months after graduation and if they earn a minimum income of $40,000 per year. One week after the training starts at DA, the investment management company pay DA the first advance amount for each cohort, calculated at 79% of tuition. The second advance amount (also calculated as 9% of tuition) will be paid to DA when the students of the cohort graduate. The remaining 12% of tuition will be paid by the investors to DA monthly on a cohort basis once the Investors are fully paid by the students relating to the advance amounts plus 15% investment return. Question: Please propose the revenue recognition methodology for this agreement under ASC 606, assuming the full tuition for the course is $15,000. Please include any assumptions made.

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