Standalone Selling Price-Weighted Allocation
The standard price allocation among performance obligations is based on standalone selling prices. The system calculates the transaction price by consolidating the amounts on all pricing conditions that require allocation. Then it redistributes the transaction price to performance obligations in proportion to their standalone selling prices. A performance obligation may represent multiple units of a sold item. Therefore, the amount allocated to the performance obligation is in proportion to its standalone selling price multiplied by the quantity.
The standalone selling price is the “fair value” selling price of a distinct good or service if it is sold on its own.
Example
Jolin’s Software Ltd. sells business software. One of her best-selling products is an accounting tool. In a contract with a customer, Jolin’s Software Ltd. promises to deliver a software license for 15 users and maintenance service for 12 months in exchange for a total of EUR 4,000. When sold separately, a license for one user sells for EUR 200, and maintenance service for every 12 months sells for EUR 2,000.
The sales order includes 15 software licenses billed at EUR 200 each and one unit of maintenance service billed at EUR 1,000 each period.
Allocation based on standalone selling prices produces the following result:
Index | Performance Obligation | Standalone Selling Price | Quantity | Original PR00 Amount | Allocated PR00 Amount |
|---|---|---|---|---|---|
1 | Software License | EUR 200 | 15 PC | EUR 200 * 15 | EUR 2,400 |
2 | Maintenance Service | EUR 2,000 | 1 Period | EUR 1,000 | EUR 1,600 |