As many of our customers have recently learned from their auditors, Microsoft Dynamics GP does not include specific support for handling EITF 08-01 requirements. However, Microsoft Gold ERP Partner Tensoft offers a product called Revenue Cycle Management (RCM) which is Certified for Microsoft Dynamics (CfMD) and specifically supports this regulation, as well as the broad variety of requirements for software and technology companies.
Typically, EITF 08-01 requirements can be a bit more complex than the example given. EITF 08-01 applies when there is a multi-element sale (multiple related items sold at the same time), and requires that an independant value be applied to each element of the sale prior to revenue rules being applied. Revenue rules are applied after the fair value allocation. The reasoning behind this is to ensure comparability between transactions (within your company and between companies) as well as revenue requirements (revenue is recognized when realizable). This is a fairly technical area of revenue recognition - an example may be helpful.
Say you are selling a product plus a maintenance agreement - two related elements on a sale. You sell the software for $10,000 - and the maintenance is $1,000 for the first year.
Software $10,000
Maintenance $ 1,000
Total $10,000
The first step is to say - are these the fair values for revenue recognition? Suppose your annual review has determined the fair value of the software is $10,000 while the fair value of the maintenance is actually $3,000. The fair value of the whole transaction is $13,000 - more than the total of the invoice. EITF 08-01 says you need to do a weighted value allocation of the transaction total to the lines - which would appear as follows:
Software 10,000/13,000 = .769 * 11,000 = 8,459
Maintenance 3,000/13,000 = .231 * 11,000 = 2,541
Now that you have a new value per line on the transaction (the fair value) you need to apply the revenue rules for that line. For software you might recognize the revenue immediately. For the undelivered item (maintenance) you would recognize it over the period of time it represents - one year.
For additional information about EITF 08-01, you may want to review the recorded webcasts in Tensoft's Resource Center (www.tensoft.com/resources), including "EITF 08-1 and the Relative Selling Price Method for Multiple Element Arrangements." This webcast was presented live on 9/20/11 and was eligible for CPE credit.
For information about Tensoft RCM and EITF 08-01, please visit www.tensoft.com, email info@tensoft.com, or contact me directly.
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