Thread: Unearned Revenue keeps changing

Statistical Prognosis, algorithmic inconsistency
Your suffering from a common statistical analysis malady oft denoted: algorithmic
inconsistency and is the darling of mathematicians, economists, NASA 'telemetricians,
engineers and Google search engine geeks.

Consider budget accounting for a Special Purpose Entity (SPE) with 1 (one) property
contributed for securitization purposes: oil license on proven reserves in Texas.

Year 1 Revenue: $0
Year 2 Revenue: $1 mil
Year 3 Revenue: $10mil
Year 4 Revenue: $1 mil (well depletion)

Constructing a spreadsheet to calculate anticipated earnings prognosis, without
a function designed to "smooth" earnings distributions, results in payments to
bondholders with variable annual yields similar to venture capital agreements.

Answer: Flag to Zahid or Pat to suggest an Excel function with "smoothing" attributes.
Example: Mimic automobile lease financing pool securitization practices: Sum
Years 1,2,3,4 expenses, divide by 48 months, result: monthly lease expense from parent
company to grantor trust transportation pool.

Realistic Answer: Heed Ingmar's suggestion; Identify inconsistent data reporting, inform
relevant parties to expect variable accounting information (dynamic economics) and budget
accordingly.

There is another option. Propeller Head Alert

I've been waiting to discuss grantor trusts and UNIFORM PRINCIPAL AND INCOME ACT (1997) rules.

Separate the transportation pool into a separate trust (grantor trust qualifying as
an entity disregarded for tax purposes*). Account for the trust under a cash system. Complete
a boiler plate 2 page property management trust agreement similar to a SILO. Expenses, depreciation
and income (if any) "flow through" to parent entity.
Accountants term above practice a: "Reserve Account Class 1-3" (FASB), or,
"Provisional Account"; legal reserve fund (IASB) (a.k.a., a trust)
http://en.wikipedia.org/wiki/Reserve_%28accounting%29


SECTION 403. BUSINESS AND OTHER ACTIVITIES CONDUCTED BY TRUSTEE.

["...or other activity..." rule]

(a) If a trustee who conducts a business or other activity determines that it is in
the best interest of all the beneficiaries to account separately for the business or
activity instead of accounting for it as part of the trust's general accounting records,
the trustee may maintain separate accounting records for its transactions, whether
or not its assets are segregated from other trust assets.

(b) A trustee who accounts separately for a business or other activity may determine
the extent to which its net cash receipts must be retained for working capital, the
acquisition or replacement of fixed assets, and other reasonably foreseeable needs of
the business or activity, and the extent to which the remaining net cash receipts
are accounted for as principal or income in the trust's general accounting records. If a
trustee sells assets of the business or other activity, other than in the ordinary course
of the business or activity, the trustee shall account for the net amount received as
principal in the trust's general accounting records to the extent the trustee determines
that the amount received is no longer required in the conduct of the business.
http://www.law.upenn.edu/bll/archive...ia/upaia97.htm

* grantor trusts are not technically "entities", under federal tax rules. Helse recognizes
argument without accord.