Table:
|  |  | May 31, |
| --- | --- | --- |
| (in millions) | 2019 | 2018 |
| Cloud services and license support | $7,340 | $7,265 |
| Hardware | 635 | 645 |
| Services | 360 | 404 |
| Cloud license and on-premise license | 39 | 27 |
| Deferred revenues, current | 8,374 | 8,341 |
| Deferred revenues, non-current (in other non-current liabilities) | 669 | 625 |
| Total deferred revenues | $9,043 | $8,966 |
Paragraphs:
9. DEFERRED REVENUES
Deferred revenues consisted of the following:
Deferred cloud services and license support revenues and deferred hardware revenues substantially represent customer payments made in advance for cloud or support contracts that are typically billed in advance with corresponding revenues generally being recognized ratably over the contractual periods. Deferred services revenues include prepayments for our services business and revenues for these services are generally recognized as the services are performed. Deferred cloud license and on-premise license revenues typically resulted from customer payments that related to undelivered products and services or specified enhancements.
In connection with our acquisitions, we have estimated the fair values of the cloud services and license support performance obligations assumed from our acquired companies. We generally have estimated the fair values of these obligations assumed using a cost build-up approach. The cost build-up approach determines fair value by estimating the costs related to fulfilling the obligations plus a normal profit margin. The sum of the costs and operating profit approximates, in theory, the amount that we would be required to pay a third party to assume these acquired obligations. These aforementioned fair value adjustments recorded for obligations assumed from our acquisitions reduced the cloud services and license support deferred revenues balances that we recorded as liabilities from these acquisitions and also reduced the resulting revenues that we recognized or will recognize over the terms of the acquired obligations during the post-combination periods.
Question:
How does the cost build-up approach determine fair value?
Answer: The cost build-up approach determines fair value by estimating the costs related to fulfilling the obligations plus a normal profit margin.