I have a multiple element question where our customers buy our products and we additionally provide equipment at no additional cost. We retain ownership and have full control. We can take the equipment back if customer doesn’t buy contractual number of products. I am thinking the equipment probably represents a lease. If so, the contract represents a multi-element arrangement.
Question is should revenue be allocated to the equipment granted the customer is not really buying it?
Thank you.
Grace,
Yes. I concur that it is probably a lease of some flavor (providing, perhaps, an implicit discount for consumption above a certain level?). The salient point is that they get equipment from you and pay you money...and if they didn't pay you money they wouldn't get it. You've absolutely got to allocate.
Hi Grace, I agree with Keith on this.
I guess that both you and customer will agree that there is some value to the equipment. If there was no value to the equipment, you will not retain the ownership of the equipment and not take it back. So it seems to be some type of a lease arrangement. However, will need to know more specifics of this transaction to comment further on this issue.
Kind regards,
Sunil Thukral,
I wonder if this is not more in the nature of a conditional sale rather than a lease, particularly as the software at the heart of the transaction is sold rather than leased?
In an arrangement with multiple deliverables, a company must determine if they should be treated as separate units of
Your company has already made this determination as stated in their last 10K report, as follows:
"We have evaluated the deliverables in our multiple-element arrangements and concluded that they are separate units of accounting if the delivered item or items have value to the customer on a standalone basis and for an arrangement that includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in our control….”
