Deferred Revenue Pg 346-355

Question 1

Two criteria must be met for multiple deliveries to recognized revenue separately

Answer 1

1. Delivered item has value to customer on stand alone basis
2. Arrangement includes general right of return relative to delivered item, delivery of undelivered item is considered probable and substantially in control of vendor

Question 2

Hierarchy used to determine selling prices of individual items based on stand-alone selling prices

Answer 2

> > Selling price in contract may not be the same of selling price to be used in computations

1. Vendor Specific objective evidence of SP about price of item if sold separately by ventor
2. If 1 not available: Third party evidence of sP about similar or interchangeable items when sold separately by third party on stand alone basis
3. If 1 & 2 not available: Best estimate of SP( ex. cost plus reasonable profit margin)

Question 3

Multi Software Deliverables

Answer 3

> Total arrangement fee allocated to various items based on vendor-specific objective evidence of FV not SP
Residual Method: Able to determine SP for undelivered item but not delivered items. Delivered items allocation of total selling price = Total selling price -total selling price of undelivered items
For RM to work revenue recognition criteria must be met AND FV of undelivered items must be less than total fee
EXCEPTION to RM: If software w/in multi deliverables arrangement is integral part of bundle of products including non software products then general guidance for revenue recognition for multi deliverables is applied (using SP not FV) NOT Residual Method