If it was more than incidental, the hardware portion of the sale and had to be deferred until all commitments with the software such as PCS were completed.
As evidence that change is the only constant, SOP software revenue recognition has subsequently been modified again to adjust for changing business conditions. The new rules separated the software elements from the hardware elements and changed VSOE requirements. Companies were given more options for establishing fair value, including using the estimated selling price. This is a significant change for two reasons.
First, by splitting hardware and software, companies may be able to accelerate the recognition of the hardware portion of a sale without waiting for completion of all deliverables within the software portion.
To show proof of VSOE, firms needed to collect sales transactions for each separate element of a contract and determine the average price for these transactions. Frequently, this leads firms to defer revenue until the entire contract was complete because VSOE had not been established. SOP software revenue recognition also addressed the idea of recognizing revenue when software and hardware components operated in conjunction with each other.
Under the statement, companies had to determine whether software was merely incidental to the hardware. If it was more than incidental, the hardware portion of the sale and had to be deferred until all commitments with the software such as PCS were completed. As evidence that change is the only constant, SOP software revenue recognition has subsequently been modified again to adjust for changing business conditions. The examples, thank you!
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