INDUSTRIES

Medical Technology & Life Sciences

Medical technology and life sciences companies rarely sell a device on its own. Surgical systems, diagnostic instruments, imaging equipment, and laboratory solutions are offered with installation, training, service contracts, warranties, consumables, and software – and often with leasing or placement models instead of an outright sale.

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Where Devices, Service, and Financing Come Together

Each of these elements can follow different accounting rules. Combined in one customer agreement, they create some of the most complex revenue and lease accounting scenarios in any industry.

Typical Challenges

• Multi-element arrangements: Systems, service, warranties, consumables, and software must be identified as performance obligations and allocated based on standalone selling prices.

• Leasing and placement models: Devices provided under sales-type, finance, or operating leases require lessor accounting under ASC 842 or IFRS 16. Devices placed at no separate charge in exchange for consumable purchases may contain an embedded lease that must be identified and accounted for.

• Warranties: Distinguishing assurance-type warranties from service-type warranties that are separate performance obligations.

• Contract modifications: Upgrades to new system generations, buyouts, early terminations, and trade-ins.

• Dual reporting: Groups reporting under both US GAAP and IFRS may classify the same lease differently.

• Audit and compliance: High scrutiny on revenue timing and contract balances.

Typical Scenarios

• Capital sale of a system with installation, training, and a multi-year service contract

• Sales-type or operating lease of equipment with bundled maintenance

• Reagent rental or placement models where equipment cost is recovered through consumables

• Free and paid extended warranties

• Upgrade of a leased system to a new model during the lease term

• Buyout of a lease and transfer of open balances to a new contract

Typical SAP Products and Modules

• SAP Revenue Accounting and Reporting (RAR): allocation across devices, service, and consumables; lessor accounting for equipment leases

• SAP SD: quotations, sales orders, deliveries, and billing

• SAP Service Management: service contracts, warranties, and field service

• SAP S/4HANA Finance: general ledger, asset accounting, and parallel accounting under US GAAP and IFRS

• SAP Contract and Lease Management (CLM): lessee accounting for leased-in assets, where relevant

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