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Section 6120: Multiple-element Revenue Arrangements
[U.S. GAAP Codification Topic]
605-25 Multiple-element arrangements
[U.S. GAAP before the Codification]
EITF Issue No. 08-1, Revenue Recognition with Multiple Deliverables
EITF No. 08-1 supersedes EITF No. 00-21
EITF Issue No. 00-21, Revenue Recognition with Multiple Deliverables
1. Multiple-Deliverable Revenue Arrangements (MDRA)
--> divided into separate units of accounting
--> if two conditions listed in ASC 605-25-25-5 are satisfied
[Note]
EITF 00-21 had three conditions.
EITF 08-1 deleted one condition.
2. Arrangement consideration is allocated
--> based on the relative selling prices
--> "relative selling price method"
[Note] EITF 00-21 used the "relative fair value method"
3. Two conditions for a separate unit of accounting
(1) Delivered items have value to the customer
--> on a standalone basis
(2) Delivery of undelivered items is
--> considered probable and
--> under the substantial control of the vendor
[Note]
EITF 00-21 had one more condition that was deleted by EITF 08-1
--> Undelivered items should have
--> the objective and reliable "evidence of fair value"
4. Relative selling price method
(1) Arrangement consideration is allocated
--> at the inception of the arrangement
--> based on their "relative selling prices"
(2) Selling price is determined using
--> the "Vendor Specific Objective Evidence" (VSOE) of selling price
5. If VSOE does not exist
--> use the "Third-Party Evidence" (TPE) of selling price
6. If both VSOE and TPE are not available
--> use the "best estimate" of selling price
7. Examples of EITF 08-1
(1) Cellular telephone contract
(2) Can manufacturing equipment
(3) Standard equipment installation
(4) Automobiles sold with lifetime maintenance services
(5) Sale of home appliances with installation and maintenance services
(6) Human resources outsourcing services
(7) Sale of medical equipment with cartridges and installation
(8) Sale of computer system
(9) Sale of 12 bolts of fabric
(10) Painting contract
(11) Agricultural equipment
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