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Lesson details
- Estimated study time
- 120 min
Learning objectives (4)
Standalone selling price, or SSP, is the separate-sale price of a promised good or service. Allocation uses SSP to assign transaction price to performance obligations. Begin with the SSP evidence; invoice lines do not answer either question.
Establish an SSP evidence hierarchy
For each obligation, search for observable sales to similar customers near contract inception. Control product configuration, service level, customer class, geography, currency, volume, channel, and date. List price can be one input but is not automatically the price at which the item is sold separately.
When direct evidence is absent, select a method:
- adjusted market assessment estimates what customers in the market would pay;
- expected cost plus an appropriate margin estimates the selling price from resources and return; or
- a residual approach may estimate a highly variable or uncertain SSP only when the applicable conditions are met.
Document ranges and outliers rather than choosing the exact number that creates management's preferred revenue timing.
Work a focused relative allocation
Use the Cedar Trail worked example. It separates observable and estimated SSP evidence from the calculation. The contract has no supported discount or variable-amount exception, so the ordinary relative method applies.
Connect the method to the full contract
The Linden Peak example supplies SSPs of $100,000 for the device, $20,000 for installation, and $30,000 for support. Total SSP is $150,000. Transaction price is $126,000 after the stipulated constraint. Relative allocations are:
| Obligation | SSP | Ratio | Allocation |
|---|---|---|---|
| Device | $100,000 | 66.6667% | $84,000 |
| Installation | 20,000 | 13.3333% | 16,800 |
| Support | 30,000 | 20.0000% | 25,200 |
| Total | $150,000 | 100.0000% | $126,000 |
Carry full precision and control the last rounding unit. Allocation must exhaust the transaction price and no obligation's recognition schedule may exceed its allocation.
Test exceptions visibly
A discount can be allocated entirely to selected obligations only when observable evidence supports the specified relationship. Variable consideration can follow a particular obligation or distinct period when its terms and result are consistent with the allocation objective. Neither exception follows from an invoice line or salesperson assertion.
Allocation review
Reperform the Cedar Trail example, then change training SSP to $45,000 without changing transaction price. Explain which allocations move, what does not, and why the exercise cannot prove the supplied obligations, SSP evidence, or transaction price. Then complete the connected practice with different facts.