Eye Vision Inc, a long-standing medical device manufacturer, has signed a contract to sell Holland Hospital the Clear View Laser and a two-year separately priced maintenance plan for $1 million and $0.2 million respectively. On a when-and-if available bais, Eye Vision Inc. will provide software updats that is embedded with the Laser to maintainance purchasor. The software has never been sold without Laser for its functional necessity. In this memo, as explained below, we conclude that:
1. Eye Vision’s arrangement with Holland Hospital is not within the scope of ASC 985-605, Software: Revenue Recognition.
2. The deliverables in this arrangement are the Clear View Laser, embedded software, and maintenance plan, …show more content…
The second criterion states, "If the arrangement includes a general right of return relative to the delivered item, delivery or performance of the undelivered item or items is considered probable and substantially in the control of the vendor." The agreement states that there is no general rights of return. Therefore this is not applicable.
Each unit of accounting must be evaluated accordingly for the proper revenue recognition technique.
Alternative / Opposing Approach
It can be argued that when the Clear View Laser with the embedded software and maintenance plan are purchased together, they can all be accounted for as one unit. This is based off the idea that the maintenance plan has no stand alone value to the consumer in the event the Clear View Laser is not purchased in unison. According to ASC 605-25-25-3, "In applying the guidance in this Subtopic, separate contracts with the same entity or related parties that are entered into at or near the same time are presumed to have been negotiated as a package and shall, therefore, be evaluated as a single arrangement in considering whether there are one or more units