7.2 Stand-Alone Selling Price
ASC 606-10
32-29 To meet the allocation
objective, an entity shall allocate the transaction price to
each performance obligation identified in the contract on a
relative standalone selling price basis in accordance with
paragraphs 606-10-32-31 through 32-35, except as specified
in paragraphs 606-10-32-36 through 32-38 (for allocating
discounts) and paragraphs 606-10-32-39 through 32-41 (for
allocating consideration that includes variable
amounts).
32-30 Paragraphs 606-10-32-31
through 32-41 do not apply if a contract has only
one performance obligation. However, paragraphs
606-10-32-39 through 32-41 may apply if an entity
promises to transfer a series of distinct goods or
services identified as a single performance
obligation in accordance with paragraph 606-10-
25-14(b) and the promised consideration includes
variable amounts.
The principle of allocating the transaction price to each performance obligation
is that consideration should be allocated on the basis of the relative stand-alone
selling price of each distinct good or service in the contract. The result of
allocating consideration on this basis should be consistent with the overall core
principle of the revenue standard (i.e., to recognize revenue in an amount that
depicts the consideration to which the entity expects to be entitled in exchange for
the promised goods or services).
ASC 606-10-32-29 requires an entity to allocate the transaction price to each performance obligation on
a relative stand-alone selling price basis. In determining the allocation, an entity is required to maximize
the use of observable inputs. When the stand-alone selling price of a good or service is not directly
observable, an entity is required to estimate the stand-alone selling price. The example below, which is
reproduced from ASC 606, illustrates how to apply the standard’s allocation method.
ASC 606-10
Example 33 — Allocation Methodology
55-256 An entity enters into a contract with a customer to sell Products A, B, and C in exchange for $100. The
entity will satisfy the performance obligations for each of the products at different points in time. The entity
regularly sells Product A separately, and, therefore the standalone selling price is directly observable. The
standalone selling prices of Products B and C are not directly observable.
55-257 Because the standalone selling prices for Products B and C are not directly observable, the entity must
estimate them. To estimate the standalone selling prices, the entity uses the adjusted market assessment
approach for Product B and the expected cost plus a margin approach for Product C. In making those
estimates, the entity maximizes the use of observable inputs (in accordance with paragraph 606-10-32-33). The
entity estimates the standalone selling prices as follows:
55-258 The customer receives a discount for purchasing the bundle of goods because the sum of the
standalone selling prices ($150) exceeds the promised consideration ($100). The entity considers whether it
has observable evidence about the performance obligation to which the entire discount belongs (in accordance
with paragraph 606-10-32-37) and concludes that it does not. Consequently, in accordance with paragraphs
606-10-32-31 and 606-10-32-36, the discount is allocated proportionately across Products A, B, and C. The
discount, and therefore the transaction price, is allocated as follows: