Dell 2010 Annual Report Download - page 70

Table of Contents
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
deployment, asset recovery, recycling, IT outsourcing, consulting, applications development, applications maintenance, and
business process services. As more fully explained in Recently Issued and Adopted Accounting Pronouncements below,
effective with the first quarter of Fiscal 2011, Dell allocated revenue to all deliverables based on their relative selling prices.
The new guidance permits a company to make its best estimate of the selling price of deliverables when more objective
evidence of selling price is not available. The hierarchy to be used to determine the selling price to be used for allocating
revenue to deliverables is: (1) VSOE, (2) third-party evidence of selling price ("TPE"), and (3) best estimate of the selling
price ("ESP"). A majority of Dell product and service offerings are sold on a standalone basis. Because selling price is
generally available based on standalone sales, Dell has limited application of TPE, as determined by comparison of pricing for
products and services to the pricing of similar products and services as offered by Dell or its competitors in standalone sales to
similarly situated customers. As new products are introduced in future periods, Dell may be required to use TPE or ESP,
depending on the specific facts at the time.
For Fiscal 2010 and Fiscal 2009, pursuant to the previous guidance for Revenue Arrangements with Multiple Deliverables,
Dell allocated revenue from multiple element arrangements to the elements based on the relative fair value of each element,
which was generally based on the relative sales price of each element when sold separately. The adoption of the new guidance
in the first quarter of Fiscal 2011 did not change the manner in which Dell accounts for its multiple deliverable arrangements
as Dell did not use the residual method for the majority of its offerings and its services offerings are generally sold on a
standalone basis where evidence of selling price is available.
Other
Dell records revenue from the sale of equipment under sales-type leases as product revenue at the inception of the lease. Sales-
type leases also produce financing income, which is included in net revenue in the Consolidated Statement of Income and is
recognized at consistent rates of return over the lease term. Customer revolving loan financing income is also included in net
revenue and recognized on an accrual basis.
Dell reports revenue net of any revenue-based taxes assessed by governmental authorities that are imposed on and concurrent
with specific revenue-producing transactions.
Warranty Liabilities — Dell records warranty liabilities for its standard limited warranty at the time of sale for the estimated costs that
may be incurred under its limited warranty. The specific warranty terms and conditions vary depending upon the product sold and the
country in which Dell does business, but generally includes technical support, parts, and labor over a period ranging from one to three
years. Factors that affect Dell's warranty liability include the number of installed units currently under warranty, historical and anticipated
rates of warranty claims on those units, and cost per claim to satisfy Dell's warranty obligation. The anticipated rate of warranty claims is
the primary factor impacting the estimated warranty obligation. The other factors are less significant due to the fact that the average
remaining aggregate warranty period of the covered installed base is approximately 15 months, repair parts are generally already in stock
or available at pre-determined prices, and labor rates are generally arranged at pre-established amounts with service providers. Warranty
claims are relatively predictable based on historical experience of failure rates. If actual results differ from the estimates, Dell revises its
estimated warranty liability. Each quarter, Dell reevaluates its estimates to assess the adequacy of its recorded warranty liabilities and
adjusts the amounts as necessary.
Vendor Rebates — Dell may receive consideration from vendors in the normal course of business. Certain of these funds are rebates of
purchase price paid and others are related to reimbursement of costs incurred by Dell to sell the vendor's products. Dell recognizes a
reduction of cost of goods sold and inventory if the funds are a reduction of the price of the vendor's products. If the consideration is a
reimbursement of costs incurred by Dell to sell or develop the vendor's products, then the consideration is classified as a reduction of that
cost in the Consolidated Statements of
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