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Revenue Recognition For Selling Hardware Plus Software

Anish Shah's Profile

Question - can we recognize the full price upfront since the sale is final?  If not what is best way to recognize the first sale

Selling a piece of hardware w/subscription incl. for the first year. Post first year purchaser has to subscribe monthly or annual. Subscription needed for hardware to work.

Answers

Anonymous
(Accounting Manager) |

Consult SOP 97-2 for further guidance. If the hardware does not function without the license subscription, then ratable revenue recognition is required of both the hardware and subscription. If the hardware can function without the subscription or another company can provide the subscription to the purchaser; and there's specific objective evidence of the selling price, then the hardware revenue can be recognized upfront and the subscription revenue recognized ratably over the subscription term.

Topic Expert
Doug Thompson
Title: Director of Revenue
Company: Castlight Health
(Director of Revenue, Castlight Health) |

Also review EITF 09-3 (ASU 2009-14). Makes things less strict, so that if the software is essential to the functioning of the hardware, it's excluded from software revenue guidance. Think of the operating system on a PC, everything could be recognized on shipment. But a software application sold along with the hardware would still be under SOP 97-2.
Here's a good article, shows how EITF 09-2 and 08-1 go together.
http://cdn2.hubspot.net/hub/219512/file-29306696-pdf/docs/EITF09-3.pdf?t=1453475013881

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