Step 4: Allocate the

transaction price to the

performance obligations
The transaction price is allocated to each performance
obligation identified in a contract based on the relative
stand alone prices of the distinct goods or services
promised to be transferred

Stand alone selling price is “the price at which a

promised good or service can be sold seperately to a
customer.”
A list price or a contract price may be (but is not presumed
to be) the stand-alone selling price of a good or service

If the stand alone selling price is not directly

determinable, it shall be estimated - maximizing the use
of observable inputs and applying estimation methods
consistently in similar circumstances
The following methods may be used to estimate the stand-alone selling price:

A. Adjusted market assessment approach - the entity evaluates the

market where the goods or services are sold and estimates the price that
a customer would be willing to pay for those goods or services. This may
also include referring to competitor’s prices for similar goods or services
and adjusting those prices as necessary to reflect the entity;s cost and
margins.
B. Expected cost plus margin approach - the entity forecasts the expected
cost of satisfying a performance obligation and then adds an appropriate
margin.
C. Residual approach - the stand-alone selling price of a good or service is the
residual amount after deducting all the stand-alone selling prices of the other
promised goods and services in the contract from the total trasaction price.

A combination of methods may be used if two or more goods and services

have highly variable or uncertain stand-alone selling price