ASC 606 Revenue Recognition: Allocating Transaction Price to Performance Obligations
Date: Friday, December 17, 2021
Instructor: Lynn Fountain
||9:00am Pacific Time
10:00am Mountain Time
11:00am Central Time
12:00pm Eastern Time
||2 hours for CPAs
Once transaction price is determined under the updated revenue recognition standard, it is allocated to performance obligations (PO’s) based on relative stand-alone selling price (SSP).
Transaction price is the basis for measuring revenue. It is the amount of consideration the entity expects to be entitled to in exchange for transferring promised goods or services. The standard identifies three separate estimation methods that can be used to estimate stand-alone selling price. These include:
• Adjusted market assessment approach;
• Expected cost-plus margin approach and
• Residual approach.
These approaches can also be utilized when considering how to allocate discounts and variable consideration. Within this segment, we cover the aspects of allocating the transaction price for revenue recognition.
For a contract that has more than one performance obligation, an organization should allocate the transaction price to each separate performance obligation in the amount that depicts the amount of consideration to which the entity expects to be entitled in exchange for satisfying each separate performance obligation. Sometimes, the transaction price includes a discount or variable consideration that relates entirely to one of the performance obligations in a contract. The requirements specify when an entity should allocate the discount or variable consideration to one (or some) performance obligation(s) rather than to all performance obligations. Any subsequent changes in the transaction price should be allocated on the same basis as at contract inception.
Within this session we will delve into the various elements required to comply of the standard. Those include understanding allocation methods such as adjusted market assessment and cost plus margin and Allocate the residual value approach. We will also provide working scenarios on how to utilize each method and in which circumstances each method is applicable. In addition, we will review some broad examples on how to allocate discounts and account for variable consideration as well as discuss the implications of COVID-19 on the revenue recognition model.
Who Should Attend
Accountants and Finance professionals, Internal auditors/Professionals considering the role of internal audit, and Legal and Compliance professionals
- Adjusted market assessment
- Cost plus margin
- Allocate the residual value approach
- Working scenarios on how to utilize each method and in which circumstances each method is applicable
- Review some broad examples on how to allocate discounts and account for variable consideration
- The implications of COVID-19
- Describe the revenue recognition model: Allocate the Transaction Price
- Recognize how to evaluate examples of estimation approaches for stand-alone selling price (SSP)
- Identify the adjusted market assessment estimation approach and examine examples
- Identify the expected cost-plus margin approach and examine examples
- Identify the residual estimation approach and examine examples
- Identify how to allocate discounts
- Differentiate between Accounting Standards Codification (ASC) 605 and ASC 606
- Recognize how to allocate variable consideration
- Describe COVID impact
NASBA Field of Study
Accounting (2 hours)