SOP 97-2 specifies that revenue from an arrangement involving multiple elements should be allocated to the various elements based on VSOE of fair values. SOP 97-2 specifies that VSOE of fair value is limited to (i) the price charged by the vendor when the same element is sold seperately or (ii) if the element is not yet being sold separately, the price for each element established by the vendor's management having the relevant authority to establish such a price.
If a vendor's management establishes a price for an element that is not yet being sold separately, the vendor should expect that the element will be sold separately (i.e., the price established for an element that the vendor does not have the ability and current intent to sell separately would not constitute VSOE of fair value for the element). Furthermore, if a vendor establishes a price for an element that is not yet being sold separately, it must be probably that the established price will not change before the element is introduced into the marketplace.
The guidance for establishing VSOE of fair value of an element would apply to (1) an element that is currently under development that hs not been introduced into the marketplace, and (2) an element that has been introduced into the marketplace but historically has not been sold separately (i.e., the element has been sold only as an element of a multiple-element arrangement).
Common Methods to Determine VSOE
| Element | Sources of VSOE of Fair Value |
| PCS - Perpetual License | Price when sold separately. Contractual renewal rates. |
| PCS - Time-based license | Price when sold separately. Contractual renewal rates. |
| Services | Hourly rates in separate sales. |
| Specified upgrades | Upgrade fees to installed base. Price to be charged when upgrade is available - provided that the vendor has a sufficient history of subsequently selling at established price. |
| Additional software products | Price when sold separately. Price to be charged when product is available - provided that the vendor has a sufficient history of subsequently selling at established price. |
Additionally, AcSEC believes that separate prices stated in a contract cannot be presumed to represent fair value and, accordingly, should not be used as the basis for allocating revenue to the elements of an arrangement. The same limitation would apply to a price list published by a vendor. That is, a published price list, in and of itself, would not qualify as VSOE of fair value unless the vendor has an established history of selling products at list price. Thus, VSOE of fair value should be based on the actual amount charged to specific groups of customers when an element is sold separately (i.e., net of any discount from the published price list).
