VSOE Revenue Recognition Examples

The following examples of vendor-specific objective evidence (VSOE) revenue recognition illustrate possible VSOE scenarios you are likely to come across in your usual workflows.

Each scenario includes examples of VSOE transactions with various VSOE settings, statuses, and pricing information for items, such as the following:

various delivery statuses
various deferral settings
matching/non-matching VSOE and invoice pricing
complete/incomplete VSOE prices
complete/incomplete invoice prices

In this group of examples, all items on the sale have a VSOE price indicated.

VSOE Scenario 1

These transactions have the following attributes:

All items have a VSOE price.
The sales amount of the transaction equals the total VSOE amount.
No discount items or specified upgrades are included.
The invoice price is different than the VSOE amount, for some items.

Item	Invoice price	VSOE Price	VSOE Allocation	Deferral	Delivered
Upgrade	$500	$400	$400	Defer Bundle Until Delivered	Yes
Support	300	200	200	Defer Until Item Delivered	Yes
Product 301	800	1000	1000	Defer Until Item Delivered	Yes
Total	$1600	$1600	$1600

The Example 1 bundle has known VSOE prices for all items and the VSOE allocation amount is equal to the VSOE price. Because all items are marked delivered, revenue recognition schedules are created for all items.

Item	Invoice price	VSOE Price	VSOE Allocation	Deferral	Delivered
Upgrade	$500	$400	$400	Defer Bundle Until Delivered	Yes
Support	300	200	200	Defer Until Item Delivered	No
Product 301	800	1000	1000	Defer Until Item Delivered	Yes
Total	$1600	$1600	$1600

The Example 2 bundle has known VSOE prices for all items and the VSOE allocation is equal to the VSOE price. Since the Support item is not delivered at the time of invoice, the $200 VSOE allocation amount for that item is deferred indefinitely and no revenue recognition schedule is created until it is marked delivered.

Item	Invoice price	VSOE Price	Allocation Amount	Delivered	Deferral
Software Product 099	$10,000	$8,000	unknown	Yes	Defer Until Item Delivered
Professional Services, 100 hours	8,000	8,000	unknown	No	Defer Bundle Until Delivered
Maintenance, 1 year	2,000	2000	unknown	No	Defer Until Item Delivered
Total	$20,000	$18,000	unknown

Item

Invoice price

VSOE Price

Allocation Amount

Delivered

Deferral

Software Product 099

$10,000

$8,000

unknown

Yes

Defer Until Item Delivered

Professional Services, 100 hours

8,000

unknown

Defer Bundle Until Delivered

Maintenance, 1 year

2,000

2000

unknown

Defer Until Item Delivered

Total

$20,000

$18,000

unknown

The Example 3 bundle has known VSOE prices for all items, but the total invoice price of the bundle is $2,000 more than the VSOE total. Therefore, amounts are not yet allocated because the item Professional Services has a deferral setting of Defer Bundle Until Delivered. This means that the VSOE allocation of all items in the bundle is deferred, or on hold, until this item is marked delivered.

VSOE Scenario 2

These transactions have the following attributes:

All of the items have a VSOE price.
No items are marked Defer Bundle Until Delivered.
The total sales price of items is greater than the total VSOE price.

Item	Invoice price	VSOE Price	Delivered	Deferral
Service 202	$1500	$1000	No	Defer Until Item Delivered
Product 101	1500	2000	Yes	Defer Until Item Delivered
Product 103	2500	2500	Yes	Defer Until Item Delivered
Total	$5500	$5500

In Example 1 above, the VSOE price is allocated for delivered items. Allocation is deferred for items not yet delivered.

Products 101 and 103 are marked delivered and a recognition schedule is generated. The schedule recognizes the allocated VSOE price of each item, not the sales amount.

The VSOE price of Service 202 is deferred pending delivery.

Item	Invoice price	VSOE Price	VSOE %	Calculate	VSOE Allocation
Service 202	$0	$1000	18.2%	(3700 x .182) = 672.73	$672.73
Product 401	2200	2000	36.4%	(3700 x .364) = 1345.45	1345.45
Product 501	1500	2500	45.5%	(3700 x .455) = 1681.82	1681.82
Total	$3700	$5500	100%		$3700.00

In example 2 above, NetSuite allocates the percentage of the sales amount to each bundle member item based on the VSOE price of an item.

VSOE Scenario 3

These transactions have the following attributes:

All of the items have an assigned VSOE price.
No items are marked Defer Bundle Until Delivered.
The total VSOE price of the bundle is greater than the total sales price.
All items are set to Defer Until Item Delivered and have been delivered.

Item	Invoice price	VSOE Price	VSOE %	Calculate	VSOE Allocation
Service 202	$0	$1000	.182	3700 x .182	$672.73
Product 401	2200	2000	.364	3700 x .364	1345.45
Product 501	1500	2500	.455	3700 x .455	1681.82
Total	$3700	$5500	100%		$3700

In Example 1 above, NetSuite allocates the appropriate percentage of the sales amount for each line item based on the VSOE amount for each item.

VSOE Scenario 4

These transactions have the following attributes:

All of the items have an assigned VSOE price.
At least one item is marked Defer Bundle Until Delivered.

Item	Invoice price	VSOE Price	VSOE Allocation	Delivered?	Deferral
Service 202	$1500	$1000	$1000	No	Defer Bundle Until Delivered
Product 101	1500	2000	2000	Yes	Defer Until Item Delivered
Product 103	2500	2500	2500	Yes	Defer Until Item Delivered
Total	$5500	$5500	$5500

In Example 1 above, Service 202's deferral status is Defer Bundle Until Delivered. The VSOE price is not allocated for any items until Service 202 is marked delivered.

Service 202 is not allocated because it is not delivered
Products 101 and 103 are not allocated even though they are delivered because Service 202 is not yet delivered

When Service 202 is marked delivered, NetSuite allocates the VSOE price of all items.

Service 202 is allocated because it is delivered
Products 101and 103 are allocated because they are delivered AND Service 202 is delivered

Note:

When an item in a bundle is marked Defer Bundle Until Delivered and that item's delivery status is Delivered, the revenue recognition of other items in the bundle depends on their individual delivered statuses.

If the delivery statuses of items in the above example are changed, the effect is as described below:

Delivered?	Deferral	Allocation
Service 202 = Yes Product 101 = No	Service 202 = Defer Bundle Until Delivered Product 101 = Defer Until Item Delivered	S202 = Revenue recognition begins based on the assigned schedule. P101 = Revenue recognition is deferred.
Service 202 = No Product 101 = No	Service 202 = Defer Bundle Until Delivered Product 101 = Defer Until Item Delivered	S202= Revenue recognition is deferred until S202 is marked delivered. P101 = Revenue recognition is deferred.
Service 202 = Yes Product 101 = Yes	Service 202 = Defer Bundle Until Delivered Product 101 = Defer Until Item Delivered	S202 = Revenue recognition begins based on the assigned schedule. P101 = Revenue recognition begins based on the assigned schedule.

Delivered?

Deferral

Allocation

Service 202 = Yes

Product 101 = No

Service 202 =

Defer Bundle Until Delivered

Product 101 =

Defer Until Item Delivered

S202 = Revenue recognition begins based on the assigned schedule.

P101 = Revenue recognition is deferred.

Service 202 = No

Product 101 = No

Service 202 =

Defer Bundle Until Delivered

Product 101 =

Defer Until Item Delivered

S202= Revenue recognition is deferred until S202 is marked delivered.

P101 = Revenue recognition is deferred.

Service 202 = Yes

Product 101 = Yes

Service 202 =

Defer Bundle Until Delivered

Product 101 =

Defer Until Item Delivered

S202 = Revenue recognition begins based on the assigned schedule.

P101 = Revenue recognition begins based on the assigned schedule.

VSOE Scenario 5

These transactions have the following attributes:

The transaction includes a bundle-level discount.
All items are delivered.
The Residual Method does not apply to the bundle.

In this case, a discount affects the VSOE allocation of each item in proportion to its VSOE price, or total VSOE amount for multiple items. This effect on the VSOE allocation, shown in example 1 below, is the same for transaction-level discounts.

Item	VSOE Price	Delivered?	VSOE %	Invoice price	Calculations	VSOE Allocation
Installation Service 302	$1000	Yes	.182	$0	(3300 x .182) = 605.45	$605.45
Software Product 401	2000	Yes	.364	$2200	(3300 x .364) =1210.91	1210.91
Software Product 501	2500	Yes	.455	1500	(3300 x .455) = 1513.64	1513.64
Subtotal			100%	3700
10% transaction discount				(370)
Total	$5500		100%	$3330		$3330.00

In example 2, there is an item-level discount on Software Product 401 and the Residual Method does not apply to the bundle. For sales or billing purposes, the discount applies to one specific item. However, for VSOE purposes, the discount is handled the same as a transaction-level or bundle-level discount. The discount affects the VSOE allocation of each item in proportion to their VSOE prices or VSOE amount.

Item	VSOE Price	Delivered?	VSOE %	Invoice price	Calculations	VSOE Allocation
Installation Service 302	$1000	Yes	.182	$0	(3480 x .182) = 632.73	$632.73
Software Product 401	2000	Yes	.364	$2200	(3480 x .364) =1265.45	1265.45
10% item discount				(220)
Software Product 501	2500	Yes	.455	1500	(3480 x .455) = 1581.82	1581.82
Total	$5500		100%	$3480		$3480

Note:

VSOE allocation cannot be automatically performed if a transaction contains multiple bundles and a transaction-level discount.

VSOE Scenario 1

VSOE Scenario 2

VSOE Scenario 3

VSOE Scenario 4

VSOE Scenario 5

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