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Contract Language: Service Provider will fund an investment in a new dorm building in the amount of Ten Million Dollars ($10,000,000). The investment will be

Contract Language:

  1. Service Provider will fund an investment in a new dorm building in the amount of Ten Million Dollars ($10,000,000). The investment will be amortized over a period of fifteen (15) years from the date of disbursement calculated at a rate equal to a straight-line basis. If the agreement is terminated prior to the full amortization of the investment, then the client is liable for and promises to pay Service Provider within thirty (30) days of the termination notice date the unamortized portion of the Investment.

  1. Based on the definitions above, is this a service or non-service asset?
  2. Based on the definitions above, what type of commitment is this if this is a consumer contract? CFA, Intangible, Prepaid Discount?
  3. Calculate the first month amortization expense for the investment.

Definitions:

  • Service Asset: Investment for tangible assets used to deliver service. Not dependent upon CGUSA retaining title. Payments can be made directly to a vendor or to a client to pay the vendor.
  • Non-Service Asset: Tangible Assets not used to deliver service

  • Cash Payment: Payments to client with no restrictions on how the client must spend.
  • Contract Fulfillment Asset: An Investment in the client in the form of payment for an asset that is used in fulfilling Compass performance obligation that does not meet the definition of PP&E
  • Intangible: This is a signing bonus/non-service investment in the client relationship, which is in substance the cost of acquiring the right to generate profit from consumers
  • Prepaid Discount: This is a signing bonus/non-service investment in the client relationship, which is not paid to acquire the right to generate profit from consumers

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