To allocate the transaction price on a relative stand-alone selling price basis, an entity must first determine the stand-alone selling price of the distinct good or service underlying each performance obligation. Under the standard, this is the price at which an entity would sell a good or service on a stand-alone (or separate) basis at contract inception.
IFRS 15 indicates the observable price of a good or service sold separately provides the best evidence of stand-alone selling price. However, in many situations, stand-alone selling prices will not be readily observable. In those cases, the entity must estimate the stand-alone selling price. The standard includes the requirements on estimating stand-alone selling prices in IFRS 15 78 – 80. Determining stand-alone selling prices Determining stand-alone selling prices Determining stand-alone selling prices Determining stand-alone selling prices
The following block diagram illustrates how an entity might determine the standalone selling price of a good or service, which may include estimation:
Is the stand-alone selling price directly observable?
Use the observable price
Estimate the stand-alone selling price by maximising the use of observable inputs.
Possible estimation approaches include:
Adjusted market assessment approach
Expected cost plus a margin approach
Residual approach (in limited
Other reasonable estimation approaches that maximise observable inputs
It might be appropriate to use a combination
of these three approaches
Stand-alone selling prices are determined at contract inception and are not updated to reflect changes between contract inception and when performance is complete. For example, assume an entity determines the stand-alone selling price for a promised good and, before it can finish manufacturing and deliver that good, the underlying cost of the materials doubles. In such a situation, the entity would not revise its stand-alone selling price used for this contract.
However, for future contracts involving the same good, the entity would need to determine whether the change in circumstances (i.e., the significant increase in the cost to produce the good) warrants a revision of the stand-alone selling price. If so, the entity would use that revised price for allocations in future contracts
Furthermore, if the contract is modified and that modification is treated as a termination of the existing contract and the creation of a new contract, the entity would update its estimate of the stand-alone selling price at the time of the modification. If the contract is modified and the modification is treated as a separate contract, the accounting for the original contact would not be affected (and the stand-alone selling prices of the underlying goods or services would not be updated), but the stand-alone selling prices of the distinct goods or services of the new, separate contract would have to be determined at the time of the modification.