Peachtree 2015 Annual Report Download - page 120

The Sage Group plc | Annual Report & Accounts 2015
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Results for the year continued
3 Profit before income tax
This note sets out the Group’s profit before tax, by looking in more detail at the key operating costs, including a breakdown of the costs
incurred as an employer, research and development costs, the cost of the external audit of the Group’s financial statements and finance
costs. This note also sets out the Group’s revenue recognition policy.
In addition, this note analyses the future amounts payable under operating lease agreements, which the Group has entered into
as at the year-end. These commitments are not included as liabilities on the consolidated balance sheet.
This note also provides a breakdown of any material recurring and non-recurring costs that have been reported separately on the face
of the income statement.
3.1 Revenue
Accounting policy
Revenue is measured at the fair value of the consideration received or receivable and represents amounts received or receivable
for goods and services provided in the normal course of business, net of discounts, VAT and other sales-related taxes.
The Group reports revenue under three revenue categories and the basis of recognition for each category is described below;
Category & Examples Accounting Treatment
Recurring revenue
Subscription contracts
Maintenance and support contracts
Pay as you go contracts
Recurring revenue is revenue earned from customers for the provision of a good or service, where
risks and rewards are transferred to the customer over the term of a contract, with the customer
being unable to continue to benefit from the full functionality of the good or service without
ongoing payments.
Subscription revenue is revenue earned from customers for the provision of a good or service,
where the risk and rewards are transferred to the customer over the term of a contract. In the event
that the customer stops paying, they lose the legal right to use the software and the Company has
the ability to restrict the use of the product or service. (Also known as ‘Pay to play’).
Subscription revenue and maintenance and support revenue is recognised on a straight-line basis
over the term of the contract (including non-specified upgrades, when included). Revenue relating
to future periods is classified as deferred income on the balance sheet to reflect the transfer of risk
and reward.
Software and software-related services
Perpetual software licences
Upgrades to perpetual licences
Professional services
Training
Hardware and stationary
Perpetual software licences and specified upgrades revenue is recognised when the significant
risks and rewards of ownership relating to the licence have been transferred and it is probable
that the economic benefits associated with the transaction will flow to the Group. This is when
the goods have left the warehouse to be shipped to the customer or when electronic delivery has
taken place.
Other product revenue (which includes business forms, hardware and stationary) is recognised
as the products are shipped to the customer.
Other services revenue (which include the sale of professional services and training) is recognised
when delivered, or by reference to the stage of completion of the transaction at the end of the
reporting period. This assessment is made by comparing the proportion of contract costs incurred
to date to the total expected costs to completion.
Processing revenue
Payment processing services
Payroll processing services
Processing revenue is revenue earned from customers for the processing of payments
or where Sage colleagues process our customers’ payroll.
Processing revenue is recognised at the point that the service is rendered on a per
transaction basis.
When products are bundled together before being sold to the customer, it is necessary to apply the recognition criteria to the
separately identifiable components of a single transaction in order to reflect the substance of the transaction. When customers are
offered discounts on bundled products and/or services, the combined discount is allocated to the constituent elements of the bundle,
based upon publically available list prices.