Question

Based on FASB ASC 606, when a company has multiple performance obligations, how should they allocate the transaction price?

Answer 1

FASB ASC 606, US Related to revenue from contracts with customers to determine when and how much revenue should be recognized. as per ASC 606, a performance obligation is a promise in a contract with a customer to transfer a good or service to the customer.

For a contract that has more than one performance obligation, an entity should allocate the transaction price to each seperate performance obligation in an amount that depicts the amount of consideration to which the entity expects to be entitled in exchange for satisfying each performance obligation.

To allocate an appropriate amount of consideration to each performance obligation, an entity should determine the standalone selling price at contract inception of the distinct goods or services underlying each performance obligation. Sometimes, the transaction price includes the discount or variable consideration that relates entirely to one of the performance obligations ina contract.