The guidance in this Subtopic does not apply to the following transactions and activities: e. Software components of tangible products that are sold, licensed, or leased with tangible products when the software components and nonsoftware components of the tangible product function together to deliver the tangible product’s essential functionality.
a. If sales of the tangible product without the software elements are infrequent, a rebuttable presumption exists that software elements are essential to the functionality of the tangible product.
2. What are the deliverables in this arrangement?
In this case, the main content of the Eye Vision’s arrangement with Holland Hospital include embedded software medical equipment and an initial option to purchase a two-year separately priced maintenance agreement which includes telephone support, repair or replacement of nonconforming parts, software updates, and bug fixes for the software. In this case, the deliverables are three parts. The first part is the Clear View Laser equipment and the second part is the software which is embedded in the Clear View Laser equipment, and the last part is the initial option maintenance. That’s because according the FASB codification 605-25-15-2 all deliverables which include products, services, or right to use assets, compared with this case, the Clear View Laser equipment is the product and embedded software is the right of use assets, both of these two deliverables could be delivered firstly, and the maintenance is the service could be delivered later. References from FASB codification
Except as described in the following paragraph, the guidance in this Subtopic applies to: a. All deliverables (that is, products, services, or rights to use assets) within contractually binding arrangements (whether written, oral, or implied, and hereinafter referred to as arrangements) in all industries under which a vendor will perform multiple revenue-generating activities.
3. On the basis of the responses to Questions 1 and 2, what are the units of accounting in this arrangement? The contract between Eye Vision and Holland Hospital includes the Clear View Laser which with the embedded software and a two-year separately priced maintenance agreement. Eye Vision has never sold the Clear View Laser. [ˈleizə] without the embedded software. The Eye Vision maintenance agreement is available only to purchasers of the Clear View Laser and has never been sold separately. There is not a general right of return for sales of the Clear View Laser. The delivered item is the...