Transaction price allocation

Allocation assigns the established transaction price to the identified performance obligations. The objective is to depict the consideration expected for transferring each promised good or service. ASC 606-10-32-28 through 32-30 states that objective, the ordinary relative-SSP method, and its scope.

Use the ordinary method first

Measure each obligation's standalone selling price at contract inception. Then calculate:

obligation allocation = transaction price × obligation SSP ÷ total SSP

For example, SSPs of $90,000, $30,000, and $60,000 total $180,000. If transaction price is $144,000, the ratios are 50 percent, 16.6667 percent, and 33.3333 percent. The allocations are $72,000, $24,000, and $48,000. They sum to the $144,000 transaction price.

Carry full precision until the controlled rounding line. Assign any final rounding difference under the entity's stated policy and reconcile the final amounts to transaction price. This arithmetic allocates a contract-level discount proportionately. It does not show that invoice lines equal SSP.

Test exceptions before changing the ratios

ASC 606-10-32-36 through 32-38 sets a narrow path for assigning an entire discount to one or more obligations. The entity needs observable separate sales of the individual items and the relevant discounted bundle, with a bundle discount that is substantially the same as the contract discount.

ASC 606-10-32-39 through 32-41 addresses variable amounts. A variable amount can follow a specific obligation or distinct item in a series when its terms relate specifically to that item. The result must also remain consistent with the allocation objective.

Record the evidence and conclusion apart from the calculation. Allocation does not establish the performance obligations, transaction price, SSP estimates, or timing of revenue. Work through the allocation lesson and then complete the connected practice.