Sunday, July 15, 2007

Fair Value of PCS with a Consistent Renewal % (But varying renewal dollar amount) and Software Rev Rec

Question: A software vendor charges Customer A $100,000 for a software license with a post-contract customer support (PCS) renewal rate of 15% of the license fee while a PCS renewal rate of 15% of the license fee. Does the existence of varying dollar amounts of PCS renewal fees of the same software product (resulting from using a renewal rate that is a consistent percentage of the stipulated software license fee for the same software product) indicate an absence of vendor-specific objective evidence (VSOE) of the fair value of PCS or the possible presence of discounts on PCS that should be accounted for. Answer: No. Assuming that the PCS renewal rate expressed as a consistent percentage of the stipulated license fee for customers is substantive, that PCS renewal rate would be the VSOE of the fair value of PCS>