Hi all,
I am conducting due diligence on one of my investments. Google is currently my biggest investment by far.
I am puzzled by several revenue recognition policies that Google has. Can anyone tell me if this is conservative or agressive?
a. When Google is primarily obligated in a transaction, are subject to inventory risk or have latitude in establishing prices, or have several but not all of these indicators, revenue is recorded on a gross basis. Google generally record the net amounts as revenue earned if Google is not primarily obligated and do not have inventory risk or latitude in establishing prices.
b. For arrangements that include multiple deliverables, primarily for products that contain software essential to the hardware products’ functionality and services, Google allocate revenue to each unit of accounting based on their relative selling prices. In such cases, Google uses a hierarchy to determine the selling prices to be used for allocating revenue.
i. Vendor – specific objective evidence of fair value (VSOE) – it exists only when we sell the deliverable separately and is the price actually charged by Google for deliverable.
ii. Third party evidence of selling price
iii. Best estimate of the selling price (ESP). – ESP reflect best estimate of what the selling prices of elements would be if they were sold regularly on a stand-alone basis.