Contingent Revenue Handling

Important:

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

The EITF 08-01 Revenue Recognition feature supports contingent revenue handling for professional service items. Contingent revenue handling stipulates that the allocated amount of revenue for delivered items cannot be contingent to the delivery of additional items or other specified performance issues. This prevents over-allocating revenue for recognition purposes and is determined by the ratio of the estimated selling price of professional services items on the sales order is greater than the ratio of the selling price of those items. When this occurs, the transaction is no longer considered a bundle and revenue must be recognized based on the sales price of the items.

In the example below, the sales order includes subscription items and professional services.

	Order Value	VSOE/TPE/ESP	Preliminary Allocated Value	Final Allocated Value
Subscription Items	$ 65,000	$ 40,000	$ 61,600	$ 65,000
Professional Services	12,000	10, 000	15,400	12,000
Total	$ 77,000	$ 50,000	$ 77,000	$ 77,000
PS Ratio	16%	20%	20%	16%

Professional services are 16% of the total order (12,000 / 77,000). The ratio of the VSOE/ ESP amount for professional services is 20% of the order (10,000 / 50,000). Using the VSOE/ESP ratio, the preliminary allocated revenue amount for professional services is $15,400. This amount exceeds the transaction amount of $12,000 and triggers contingent revenue handling. The transaction is no longer considered a bundle for revenue recognition and the final revenue allocation for professional service is based on the sales order amount, $12,000.

To use contingent revenue handling, enable the Allow Contingent Revenue Handling preference at Setup > Company > General Preferences > Custom Preferences.

When you enable Contingent Revenue Handling, sales order transactions display the following fields:

Contingent Revenue Handling Triggered - is set to Yes when the ESP ratio of professional services is greater than the ratio of the selling price of those items. It indicates that the allocated value of the order is based on the sales order price to comply with contingent revenue handling rules.
Contingent Revenue Handling Run - is set to Yes upon saving an order that contains professional service items. It indicates that the ratios have been calculated for sales prices and ESP prices.

In addition, NetSuite displays a message alerting you that contingent revenue handling has been triggered and clears the Transaction is VSOE Bundle check box.

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