The following excerpt is from Unisys Corporation’s 2001 annual report. Revenue Recognition. Revenue from hardware sales is recognized upon shipment and the passage of title..Revenue from software licenses is recognized at the inception of the initial license term and upon execution of an extension to the license term..Revenue from equipment and software maintenance is recognized on a straight-line basis as earned over the lives of the respective contracts..For contracts accounted for on the percentage-of-completion basis, revenue and profit recognized in any given accounting period is based on estimates of total projected contract costs, the estimates are continually reevaluated and revised, when necessary, throughout the life of a contract.
Required
What is meant by revenue recognition? Why does Unisys use different revenue recognition principles for different types of revenue? What are the critical events for each of these types of revenue? Why is estimation involved in revenue recognition for the multiyear, fixed-price contracts?