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Medtronic PLC (MDT)
Analysis of Revenues
High level of difficulty
Accounting Policy on Revenue Recognition
Medtronic sells its products through direct sales representatives and independent distributors. Additionally, a portion of Medtronic’s revenue is generated from consignment inventory maintained at hospitals. Medtronic recognizes revenue when control is transferred to the customer. For products sold through direct sales representatives and independent distributors, control is transferred upon shipment or upon delivery, based on the contract terms and legal requirements. For consignment inventory, control is transferred when the product is used or implanted. Payment terms vary depending on the country of sale, type of customer, and type of product.
If a contract contains more than one performance obligation, the transaction price is allocated to each performance obligation based on relative standalone selling price. Shipping and handling is treated as a fulfillment activity rather than a promised service, and therefore, is not considered a performance obligation. Taxes assessed by a governmental authority that are both imposed on, and concurrent with, a specific revenue producing transaction and collected by Medtronic from customers (for example, sales, use, value added, and some excise taxes) are not included in revenue. For contracts that have an original duration of one year or less, Medtronic uses the practical expedient applicable to such contracts and does not adjust the transaction price for the time value of money.
The amount of revenue recognized reflects sales rebates and returns, which are estimated based on sales terms, historical experience, and trend analysis. In estimating rebates, Medtronic considers the lag time between the point of sale and the payment of the rebate claim, the stated rebate rates, and other relevant information. Medtronic records adjustments to rebates and returns reserves as increases or decreases of revenue.
Medtronic offers warranties on various products. For standard, assurance-type warranties, Medtronic estimates the costs that may be incurred under its warranties and records a liability in the amount of such costs at the time the product is sold. The amount of the reserve is equal to the net costs to repair or otherwise satisfy the obligation. Medtronic includes the warranty obligation in other accrued expenses and other liabilities in the consolidated balance sheets. For extended, service-type warranties, a portion of the transaction price is allocated to the performance obligation. Warranty obligations at April 26, 2019 and April 27, 2018 were not material.
Medtronic records a deferred revenue liability if a customer pays consideration before Medtronic transfers a good or service to the customer. Deferred revenue primarily represents remote monitoring services and equipment maintenance, for which consideration is received at the same time as consideration for the device or equipment. Deferred revenue also includes extended, service-type warranties. Revenue related to remote monitoring services, equipment maintenance, and service-type warranties is recognized over the service period as time elapses.
Remaining performance obligations include deferred revenue and amounts Medtronic expects to receive for goods and services that have not yet been delivered or provided under existing, noncancellable contracts with minimum purchase commitments, primarily related to consumables for previously sold equipment as well as remote monitoring services and equipment maintenance. For contracts that have an original duration of one year or less, Medtronic has elected the practical expedient applicable to such contracts and does not disclose the transaction price for remaining performance obligations at the end of each reporting period and when Medtronic expects to recognize this revenue.
Source: 10-K (filing date: 2019-06-21).
Revenues as Reported
Medtronic PLC, Income Statement, Revenues
US$ in millions
Based on: 10-K (filing date: 2019-06-21), 10-K (filing date: 2018-06-22), 10-K (filing date: 2017-06-27), 10-K (filing date: 2016-06-28), 10-K (filing date: 2015-06-23), 10-K (filing date: 2014-06-20).
| Item | Description | The company |
|---|---|---|
| Net sales | Amount of revenue recognized from goods sold, services rendered, insurance premiums, or other activities that constitute an earning process. Includes, but is not limited to, investment and interest income before deduction of interest expense when recognized as a component of revenue, and sales and trading gain (loss). | Medtronic PLC’s net sales increased from 2017 to 2018 and from 2018 to 2019. |