Our company provides operational services for ATM machines. Some customers directly purchase the equipment, but others sign agreements with us stipulating that revenue will be shared based on the income generated at that location. Such agreements typically last for 5 years, yet ownership of the equipment always remains with the customer. My question is: should this revenue be recorded as deferred revenue and amortized over 5 years, or should it be fully recognized in the current month? Additionally, the company's previous policy was to capitalize the related assets, but I am not sure if this is correct because the equipment has actually been sold. I am trying to understand whether these arrangements should be accounted for as leased assets, since ownership does not transfer back to our company. Logically, I think these assets should be treated as sales, but perhaps I am overlooking some points. Thank you for your help.

Regarding the above question, accounting judgment needs to be made from two dimensions: first, the timing and method of revenue recognition, and second, whether the asset should be derecognized from the seller's books. Under current revenue standards (such as IFRS 15 or ASC 606), revenue should be recognized when the customer obtains control of the goods or services. If the equipment sale and subsequent services constitute a single performance obligation, the transaction price needs to be allocated to each performance obligation and recognized as revenue when each is satisfied. If the agreement contains a significant financing component (such as installment payments over 5 years), discounting factors need to be adjusted.

Regarding asset classification, if ownership of the equipment has transferred to the customer and the company no longer retains substantive control, the equipment should not continue to be capitalized. Conversely, if the company retains some risks and rewards (such as revenue-sharing arrangements that may expose the company to operational risks), it may constitute a lease or cooperative arrangement. Under IFRS 16 or ASC 842, if the customer controls the right to use the equipment, it is a lease; if the company only provides services, the equipment should be treated as inventory or disposal of fixed assets.

Specifically to your situation, since the customer owns the equipment and the agreement does not involve repurchase of ownership, it should generally be treated as a sale. For revenue recognition, if the transfer of control is satisfied upon equipment delivery, and the subsequent revenue share is variable consideration, revenue should be recognized at the time of equipment delivery, but the constraint on variable consideration needs to be estimated. If the shared revenue is related to future services, it may need to be deferred until the service period.

Therefore, it is recommended that your company reassess the terms of the agreement to clarify whether control has transferred at the time of equipment delivery, and whether the revenue share is linked to subsequent services. If it is a sale, the equipment should not be capitalized, but rather sales revenue should be recognized and costs should be matched. If it is a lease, it should be handled according to lease standards. It is recommended to consult a professional accountant to make a judgment based on the specific contract terms.