Dell 2010 Annual Report Download - page 69

Table of Contents
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
revenue or an expense for indirect channel programs at the later of the offer or the time revenue is recognized.
Dell defers the cost of shipped products awaiting revenue recognition until revenue is recognized.
Services
Services include transactional, outsourcing and project-based offerings. Revenue is recognized for services contracts as
earned, which is generally on a straight line basis over the term of the contract or on a proportional performance basis as the
services are rendered and Dell's obligations are fulfilled. Revenue from time and materials or cost-plus contracts is recognized
as the services are performed. Revenue from fixed price contracts is recognized on a straight line basis, unless revenues is
earned and obligations are fulfilled in a different pattern. These service contracts may include provisions for cancellation,
termination, refunds, or service level adjustments. These contract provisions would not have a significant impact on
recognized revenue as Dell generally recognizes revenue for these contracts as the services are performed.
For sales of extended warranties with a separate contract price, Dell defers revenue equal to the separately stated price.
Revenue associated with undelivered elements is deferred and recorded when delivery occurs or services are provided.
Revenue from extended warranty and service contracts, for which Dell is obligated to perform, is recorded as deferred revenue
and subsequently recognized over the term of the contract on a straight-line basis.
Revenue from sales of third-party extended warranty and service contracts or software PCS, for which Dell is not obligated to
perform, and for which Dell does not meet the criteria for gross revenue recognition under the guidance of the FASB , is
recognized on a net basis. All other revenue is recognized on a gross basis.
Software
The Company recognizes revenue in accordance with industry specific software accounting guidance for all software and PCS
that are not essential to the functionality of the hardware. Accounting for software that is essential to the functionality of the
hardware is accounted for as specified below in "Multiple Deliverables". Dell has established vendor specific objective
evidence ("VSOE") on a limited basis for certain software offerings. When Dell has not established VSOE to support a
separation of the software license and PCS elements, the revenue and related costs are generally recognized over the term of
the agreement.
As more fully explained in Recently Issued and Adopted Accounting Pronouncements below, effective with the first quarter of
Fiscal 2011, certain Dell storage products are no longer included in the scope of the software revenue recognition guidance.
Prior to the new guidance, Dell established fair value for PCS for these products based on VSOE and used the residual method
to allocate revenue to the delivered elements. Under the new guidance, the revenue for what was previously deemed PCS is
now considered part of a multiple deliverable arrangement. As such, any discount is allocated to all elements based on the
relative selling price of both delivered and undelivered elements. The impact of applying this new guidance was not material
to Dell's Consolidated Financial Statements for Fiscal 2011 or 2010.
Multiple Deliverables
Dell's multiple deliverable arrangements generally include hardware products that are sold with essential software or services
such as extended warranty, installation, maintenance, and other services contracts. The nature and terms of these multiple
deliverable arrangements will vary based on the customized needs of Dell's customers. Each of these deliverables in an
arrangement typically represents a separate unit of accounting. Dell's service contracts may include a combination of services
arrangements including
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