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Customized Software, a software company ( the Company ) , is contracted by a bank ( the Bank ) to provide a customized online platform
Customized Software, a software company the Company is contracted by a bank the
Bank to provide a customized online platform for the Banks mortgage loan applications the
Loan Platform Bank customers use the Loan Platform to complete online mortgage
applications, which involves inputting relevant information eg name, address, employment,
income, assets and uploading supporting documents eg tax returns, bank statements The
Loan Platform enables both the Bank and the applicants to retrieve necessary information and
documents as well as track the status of the lending process in real time.
To develop the Loan Platform, the Company significantly modifies and customizes its
proprietary loan application software to work with the existing systems used by the Banks
credit, customer service, and accounting departments. To create a Loan Platform that meets the
Banks specifications, the Company is contractually required to perform the following specific
software development activities the Software Services:
Conduct interviews with Bank personnel to understand system requirements and
determine how to establish interfaces needed for the Bank to integrate the Loan Platform
with its existing systems.
Test the Loan Platform in a test environment using dummy transactions.
Perform application program interface additions and modifications to the Loan Platform
that are needed to support the Banks integration and data export requirements.
Add custom functionalities to the Loan Platform eg Bankspecific underwriting and
reporting features, integration with the Banks customer service
Customize the design of the Loan Platform eg Banks logo branding, color scheme,
preferred button placement
Because the Loan Platform is highly customized, loan applicants perceive that they are accessing
the Banks Web site and may be unaware of the Companys involvement. The Bank does not
have the ability to direct the use of the Loan Platform during the Software Services period and is
not allowed to run the Loan Platform on Bank hardware at any time. Instead, after the Software
Services are completed, the Company hosts the Loan Platform on its own servers, which allows
the Bank and its loan applicants to access the software online the Processing Services
The Company has no obligation to perform further work on the Loan Platform eg
customization, upgrades after the Software Services are completed. Because the Loan Platform
runs on the Companys proprietary technology, no other vendor has the ability to perform the
Software Services or Processing Services. The Loan Platform is delivered to the Bank as a
service in the form of the Processing Services. That is no software license is transferred to the
Bank iRequiThe Software Services commence on July X and continue through December
The Processing Services commence on January X and continue for a term of five years.
The contract requires the Bank to pay the Company nonrefundable fees of $ million at the
commencement of the Software Services ie on July X and $ million over the period in
which the Company will provide the Processing Services ie equal monthly installments
between January and December Neither party has a unilateral option to
extend the contract, but the parties are free to negotiate an extension if desired.
The Company concludes the following:
The provisions of FASB Accounting Standards Update ASU No Revenue
From Contracts With Customers Topic and related amendments are effective for
the Company.
The Company's customer, as defined in FASB Accounting Standards Codification ASC
Subtopic Revenue From Contracts With Customers Overall, is the Bank as
opposed to the mortgage loan applicants
The arrangement is within the scope of ASC and meets the criteria in ASC
to be considered a contract with a customer.
Any explicit or implicit promises other than the Software Services and the Processing
Services are immaterial in the context of the contract and need not be considered.
The total transaction price, as described in ASC is the sum of the
contractually stated fees ie $ million
The Software Services are required to be performed to create the customized Loan
Platform that the Company will use to provide the Processing Services to the Bank. In
other words, the Software Services are integral to the Bank's ability to derive its intended
benefit from the Processing Services.
The Bank does not derive value from the Software Services; rather, itred:
Do the Software Services constitute a performance obligation, as defined in ASC
How much revenue, if any, should the Company recognize through December X
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