(Continued)

Step 4 – Allocate transaction price to Performance obligations (POs)

Method of allocation

If the contract comprises of 02 POs or more, the transaction price will be allocated to each PO based on relative stand-alone selling price (SASP) of each PO.

If the contract includes a discount or variable amount, allocate them proportionally in accordance with guidance below.

Determine stand-alone selling price (SASP)

SASP is the price at which an entity sells a promised good or service separately to a customer. The best evidence of SASP is the observable price of a good or service when the entity sells separately in similar circumstances and similar customers.

If a SASP is not directly observable, the company will estimate SASP by either of following methods:

- Adjusted market assessment approach: referring to competitors for similar good and service and adjust for the entity’s costs and margin.

- Expected costs plus margin approach: the entity forecasts it owns costs to complete good/service and add an appropriate margin.

- Residual approach: total transaction price less sum of all other observable SASP.

Combination of those methods may be necessary if SASP of those goods/services are highly variable and uncertain.

Allocation of discount

An entity shall allocate discount to one or more, but not all POs if all of following criteria met [IFRS 15.82]:

It means when the company regularly sells those POs separately, regularly sell at discount (to general customer) and the discount offered in the contract is substantially similar to discount given to other customer -> then the entity can allocate discount to that specific PO only.

Otherwise, the entity must allocate discount to all POs proportionately with SASP of those POs. [IFRS 15.81]

Allocation of variables

Variable consideration of a contract might be attributable to entire contract or specific part of the contract only.

An entity shall allocate variable consideration entirely to a PO or distinct goods/services of a single PO in accordance with [IFRS 15.22b] if both of following conditions met: [IFRS 15.85]

- Term of variable consideration is specifically related to the entity’s efforts to satisfy the PO or distinct goods/services of a single PO in accordance with [IFRS 15.22b].; and

- Allocating variable consideration to that PO or distinct goods/services of a single PO in accordance with [IFRS 15.22b] is to depicts expected consideration adhere to that PO or distinct good/service.

It means variable consideration must be specifically related to that PO. Then variable is allocated directly to that PO.

Except for those listed in [IFRS 15.85] above, remaining variable consideration will be allocated to remaining POs in proportion with SASP of those POs.

Changes in transaction price

After contract inception, transaction price can be changed for various reasons, including outcome of uncertain events relating to variable consideration. An entity shall allocate subsequent changes in transaction price to each PO on a same basis as at the contract inception, on SASP basis.

However, change in SASP after contract inception is not a kind of changes in transaction price and therefore should not be accounted for.

In special cases, the entity allocate changes in transaction price only to one or more, but not all, POs only if variable amounts are attributable directly to specific POs as said in [IFRS 15.85] above.

(To be continued)

Reference

- IFRS 15 Revenue from Contracts with Customers