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Katherine Simmonds Agent

The Purpose of ESPs (Estimated Selling Prices under EITF 08-1)

Asked on May 9, 2013

The following was a question posed by a Controller during a recent Revenue Recognition webinar:

I have a conceptual question. I'm not sure I understand the purpose of the ESP's. In the example given in the webinar by Mini, if the subscription is sold at $2,000, then why would you recognize that revenue at anything other than $2,000?

The webinar speakers will offer their thoughts, but please feel free to comment and share your perspective as well.

Answers

Konrad Sosnow Revenue Recognition Guru • September 29, 2010

The contract prices for the elements in a Multi-element Arrangement are not considered to be the value of the deliverables. Frequently the contract prices are negotiated between sales and the customer. The total arrangement price is looked at carefully, but not the prices of the individual deliverables.Thus, VSOE was required to establish the value of the deliverables. Under EITF 08-1 there is a three tier method of determining the value of the deliverables: First is VSOE; Second, if you cannot establish VSOE use Third Party Evidence; Third, if you do not have Third Party Evidence, use Estimated Selling Price.

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