ASC 978 ASC 978 – Real Estate–Time-Sharing Activities
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ASC 978

Active

ASC 978 – Real Estate–Time-Sharing Activities

Governs timeshare interval sales, relative sales value inventory costing, and uncollectible accounts under ASC 606.

Issued
Jul 1974
Latest amendment
Jan 2017
1

Conceptual Framework Linkage

Selling fractional intervals, with historically elevated default risk
TIMESHARE (vacation ownership interval) sales involve selling FRACTIONAL usage rights in a resort unit – typically financed and, like retail land sales (ASC 976), historically associated with notably HIGH cancellation and DEFAULT rates. ASC 978 addresses REVENUE recognition (now under ASC 606's general framework) and the DISTINCTIVE inventory COSTING challenge of allocating shared project costs across MANY individual, differently-priced timeshare intervals.
2

Scope

Developers and sellers of vacation ownership intervals
ASC 978 applies to entities developing and selling TIMESHARE (vacation ownership) intervals – fractional rights to use a resort property for a specified period each year.
3

Timeshare Interval Sales – ASC 606 Revenue Recognition

Control transfer, with careful collectibility assessment
Timeshare interval sale revenue is recognised under ASC 606's GENERAL model – upon transfer of CONTROL of the interval to the buyer, PROVIDED collection of consideration is deemed PROBABLE. Given the industry's historically ELEVATED default/cancellation rates, careful assessment of COLLECTIBILITY (as part of the general contract existence criteria) and appropriate constraint of VARIABLE CONSIDERATION are PARTICULARLY significant in practice for this industry.
4

Inventory Costing – the Relative Sales Value Method

Allocating shared resort development costs across many intervals
A SINGLE resort property is typically divided into MANY individual timeshare INTERVALS (e.g. 52 weekly intervals per unit, across potentially dozens of units), each sold at DIFFERENT times and DIFFERENT prices (e.g. a summer week commands a higher price than an off-season week). Total resort development costs are ALLOCATED to individual intervals using the RELATIVE SALES VALUE method (the SAME general approach described in the ASC 970 poster) – allocating cost proportionately based on each interval's estimated relative sales value.
5

Uncollectible Accounts – the Variable Consideration Constraint

Constraining the transaction price given historically high default rates
Given the timeshare industry's historically SIGNIFICANT rates of buyer default/rescission, sellers must carefully apply ASC 606's VARIABLE CONSIDERATION constraint – recognising revenue only for the amount HIGHLY PROBABLE not to result in a significant future REVERSAL, drawing on the entity's OWN historical default/cancellation experience for similar buyer profiles and interval types.
6

Worked Example – a Timeshare Interval Sale Recognition

Constraining revenue for expected defaults
Example: Selling a summer week interval
A developer sells a summer-week timeshare interval for $22,000, financed through the developer over 5 years. Based on historical experience with similar buyer profiles, the developer estimates a 12% eventual default rate on such financed sales.
Applying the variable consideration constraint, the developer recognises revenue of $22,000 × (1 − 12%) = $19,360 upon transfer of control of the interval – CONSTRAINING the transaction price to the amount highly probable of NOT being reversed, given the historically elevated default risk in this specific market.
7

Worked Example – Relative Sales Value Inventory Costing

Allocating shared resort costs across intervals
Example: Allocating cost to a premium summer interval
A resort's total development cost is $10,000,000, with a TOTAL estimated sales value across ALL intervals of $15,000,000. A specific premium summer-week interval has an estimated sales value of $30,000.
Allocated cost for this interval = $10,000,000 × ($30,000 ÷ $15,000,000) = $10,000,000 × 0.2% = $20,000 – the interval's PROPORTIONATE share of total resort development cost, based on its relative SALES value compared to the total pool of all intervals.
8

Disclosure Requirements

What ASC 978 requires (in addition to general ASC 606 disclosures)
Inventory costing methodology used for allocating resort development costs to intervalsHistorical default/uncollectible rates used to constrain variable consideration
9

Critical Judgments & Estimates

Where judgement matters most
SIGNIFICANT JUDGEMENTS
Whether collection is probable, given historically elevated default rates
SIGNIFICANT ESTIMATES
Expected default/cancellation rates used to constrain variable considerationRelative sales values of individual intervals within a resort project
10

ASC 978 vs IFRS – Comparison

Comparison – ASC 978 vs general IFRS 15 principles
FeatureUS GAAP (ASC 978)IFRS (IFRS 15)
Revenue recognition modelGeneral ASC 606 control transfer and variable consideration constraintSame general IFRS 15 model – converged
Inventory cost allocationRelative sales value method, describedNo dedicated named method, but general cost allocation principles achieve similar outcomes
Since timeshare revenue now follows the SAME general ASC 606/IFRS 15 framework as retail land sales, this is another substantially CONVERGED specialised real estate Topic.
11

Statement Mapping

Where every ASC 978 event lands
EventStatement(s) affectedNotes
Timeshare interval sale revenueBS ISRecognised upon control transfer, constrained for expected defaults
Interval cost of salesBS ISAllocated using the relative sales value method
12

Related Topics

Cross-reference map
TopicConnection
ASC 606Supplies the general control-transfer and variable consideration constraint framework
ASC 970Real Estate–General – supplies the general relative sales value cost allocation concept applied here
ASC 976Real Estate–Retail Land – a closely related, similarly-structured specialised real estate sale Topic
13

Quick-Reference Glossary

Timeshare interval
A fractional right to use a resort unit for a specified period each year.
Relative sales value method
A cost allocation method assigning shared resort development costs to individual intervals in proportion to their estimated relative sales values.
Financial statement key
BS Balance sheet
IS Income statement
SE Statement of changes in equity
OCI Other comprehensive income
SCF Statement of cash flows