Step 4 of ASC 606: allocating the transaction price
ASC 606-10-32-28 requires the transaction price to be allocated to each performance obligation in an amount that depicts what the entity expects to receive for transferring those goods or services. The general method is relative standalone selling price (ASC 606-10-32-31): each obligation receives the transaction price multiplied by its standalone selling price over the total of all standalone selling prices. When the sum of the standalone prices is more than the promised consideration, the difference is a discount, and it is spread across all obligations in proportion to their prices (ASC 606-10-32-36).
The exception is a discount that relates to only some obligations. If the three criteria in ASC 606-10-32-37 are met (each item is regularly sold standalone, a bundle of some of them is regularly sold at a similar discount, and there is observable evidence of where the discount belongs), the discount goes to those obligations alone, and it is allocated before any residual approach is used (ASC 606-10-32-38). In this tool, tick "Excluded" for an obligation you sell at its standalone price and the rest absorb the whole discount. Standalone selling prices are fixed at contract inception and not reallocated when they later change (ASC 606-10-32-43). Where no price is observable, estimate it with the adjusted market assessment, expected cost plus a margin, or residual approach, the last only where its conditions are met (ASC 606-10-32-34). Variable consideration allocated to a single obligation, and contract modifications, are outside this tool.
Common questions
How is the transaction price allocated under ASC 606?
In proportion to standalone selling prices: allocation = transaction price × (obligation SSP ÷ total SSP). Any discount in the contract is therefore shared by all obligations in proportion to their prices unless the exception for a discount that relates to specific obligations applies.
What if the discount relates to only one obligation?
If all three criteria in ASC 606-10-32-37 are met (the entity regularly sells each item standalone, regularly sells a bundle of some of them at a discount, and the bundle discount is substantially the same as the contract discount with observable evidence of where it belongs), allocate the whole discount to those obligations. In this tool, mark the other obligations as excluded; they are allocated their standalone selling price and the rest share what remains.
How do I estimate a standalone selling price?
Use the observable price at which the entity sells the item separately to similar customers when there is one. Otherwise estimate it: adjusted market assessment, expected cost plus a margin, or the residual approach where its conditions are met (ASC 606-10-32-33 to 32-35).
Is the allocation updated when prices change?
No. The allocation uses standalone selling prices at contract inception and is not revised for later changes in those prices (ASC 606-10-32-43). Later changes in the transaction price are allocated on the same basis.
Why does the total sometimes differ by a cent?
Each allocation is rounded to cents. The tool adds any leftover cent to the largest allocation so the allocated amounts always add to the transaction price.
Runs in your browser. The figures you type are not sent to CORAA or stored. Check the result against your firm's methodology before relying on it.