EITF 08-01 Allocation Example

Important:

EITF 08-01 Revenue Recognition is a managed SuiteApp (Bundle ID: 29321).

The chart below shows how EITF 08-01 Revenue Recognition allocates ESP amounts for revenue recognition.

Screenshot of a chart that shows how revenue is allocated for EITF 08-01

In this example, the sales order has three typical items sold by a software company; a license for12 months, a support contract and a services contract for installation. The total order amount based on item prices is $47,200 and the three transaction items represent 76%, 3%, and 21% of the total order amount respectively.

Based on the estimated selling price for each item and the sales dimension combination identified for the order, the VSOE (ESP) amounts are $28,800, $960, and $9000 for the transaction lines. EITF 08-01 Revenue Recognition feature calculates the VSOE (ESP) amounts upon saving the order. It determines the ratio of each item to the total VSOE (ESP) amount of the order. The percentages are 74.3%, 2.5%, and 23.2%. These percentages are then used to allocate how much of the total sales price of the order is to be recognized on each transaction line. The Allocation Amounts column shows the allocated amount that will be recognize using the revenue recognition schedule associated with the order.

For information about using price ranges with EITF-08-01 Revenue Recognition, see Using Estimated Selling Price Ranges.

Note:

If using the M/S as a % of License revenue model, Maintenance/Support transaction line items must always come after License - Term line items. For more information, see Implementing EITF 08-01 Revenue Recognition.

Related Topics