7.1 Background

In step 4 of the revenue standard, an entity allocates the transaction price to each of the identified performance obligations. For a contract containing more than one performance obligation, the allocation is generally performed on the basis of the relative stand-alone selling price of each performance obligation. However, as discussed below, there are exceptions that allow an entity to allocate a disproportionate amount of the transaction price to a specific performance obligation or distinct good or service. For example, an entity may allocate a discount to a single performance obligation rather than proportionately to all performance obligations if certain factors indicate that the discount is related to a specific performance obligation.