In short
The standalone selling price is the price at which a company would sell a promised good or service separately to a customer. It is the basis for allocating a contract's transaction price among its performance obligations.
Key takeaways
- The best evidence is an observable price when the item is sold on its own in similar circumstances.
- If it isn't observable, it is estimated, for example by adjusted market assessment, expected cost plus a margin, or (in limited cases) the residual approach.
- Discounts are generally allocated proportionately across all performance obligations.
Example
A $120,000 bundle has standalone prices of $80,000, $20,000 and $50,000 (total $150,000). The first item is allocated $120,000 × 80/150 = $64,000.
Where it's tested
FAR: Revenue Recognition — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A contract includes two performance obligations with standalone selling prices of $80,000 and $40,000. The total transaction price is $100,000. How much is allocated to the first obligation?