University Finance: Zynga Revenue Recognition Analysis Assignment

This assignment analyzes Zynga Inc.'s revenue recognition practices, focusing on how the company generates revenue through in-app purchases of virtual goods in its social games, primarily on Facebook. It examines Zynga's revenue model, which involves selling virtual currency that players use to buy virtual goods, and differentiates between consumable and durable virtual goods. The analysis assesses the appropriateness of Zynga's accounting methods for revenue recognition, particularly in the context of its consolidated statements of operations, and suggests improvements such as enhanced income statement evaluations and budgeting. The assignment also reviews the impact of changes in average playing periods on revenue and net income, highlighting adjustments and their effects on the company's financial performance. The conclusion provides a comprehensive review of the financial accounting methods used by Zynga.

Running head: FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Name of Student
Name of University
Author’s note

1FINANCIAL ACCOUNTING
Table of Contents
Answer to question 1..................................................................................................................2
Answer to question 2..................................................................................................................2
Answer to question 3a................................................................................................................2
Answer to question 3b................................................................................................................2
Answer to question 4a................................................................................................................2
Answer to question 4b................................................................................................................2

2FINANCIAL ACCOUNTING
Answer to question 1
Zynga Inc. (ZNGA) is the provider of social games that provides their customers with
free to play games on different social platforms. Their main social platform is Facebook.
Zynga generates their revenue by the in-purchases made by the customers. The players
purchases virtual currency to purchase the in-game virtual goods which helps Zynga to earn
their revenue.
Answer to question 2
Zynga provides virtual currency in game which is converted to virtual goods by the
player. The virtual goods are sold by two category. Consumable virtual goods are one time
consumable in the game where durable goods are provided over the lifetime of the game
which helps to generate the revenue.
Answer to question 3a
Zynga estimates their net income or loss from the consolidated statement of
operations which provides all of the necessary information about their business. The
accounting method for estimating the revenue seems appropriate as the revenue of the firm is
increasing and the methods of accounting is also proper.
Answer to question 3b
To make this accounting method more appropriate for Zynga, they should properly
evaluate their income statement and therefore prepare their budget during the year. The
income statement evaluation will be helpful in specifying their income over a specific time.
Answer to question 4a
During the year 2011, an increase of average playing period can be observed which
resulted in the increase of revenue $53.9 million. Though there was a decrease in the revenue
in 2012, the statement showed that there was an increase in the revenues during the previous
years.
Answer to question 4b
From the revised statement, it can be observed that there was an increase in the
revenue of $53.9 million that is $53900000 which was not adjusted in the statement.
Adjustment of this increase in revenue would lead to the change in net income (loss) of the

3FINANCIAL ACCOUNTING
company. After adjusting the revenue, there is an increase in the net loss of the company in
2011. The adjusted net loss amounted to $458216000. The calculation is shown below: