Clear View Laser Case Study

2540 Words11 Pages
Introduction: Recently Eye Vision Inc. has entered into a contract with Holland Hospital to sell its Clear View Laser. Included in the contract is a two-year maintenance plan that Holland Hospital has elected to purchase. This information is included in Audit Senior Jason Doolittle's memo to Eye Vision’s Audit Working Papers in conjunction with the first quarter review of the revenue line items for Eye Vision. Given this information, several determinations must be made in coordination with the Accounting Procedures contained within the FASB Codification. First, the determination needs to be made that the software is essential to the tangible product's functionality, leading to a conclusion of whether or not the agreement between Eye Vision…show more content…
Referring to ASC 985-605-15-4, "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" (ASC 985-605-15-4). The Clear View Laser's functionality is based upon the presence of the embedded software leading to the conclusion that the embedded software is the software deliverable included with the non-software deliverable previously defined as the Clear View Laser…show more content…
Describe the best solution and provide the reasons The logical solution in the given scenario is to consider the contract between Holland Hospital and Eye Vision Incorporated outside the scope of ASC 985-605. In describing the separate deliverables, it is clear that putting the contract within the scope does not provide cohesiveness within the various elements. The argument for the contract being outside the scope is stated in codifications that are related to one another. Several descriptions for the deliverables can be found in the same paragraphs. The deciding factor is the Clear View Laser Hardware and embedded software working together to provide the essential function. To label these items in any other form, than a software and non-software deliverables of a tangible product would require a stretch and leave the company vulnerable for further audit and investigation. So it is our conclusion that the maintenance and PCS would have to be packaged and sold together as one item and would not be able to be sold as separate
Open Document