Last update 24/08/2019
Exact wording: Stand-alone selling price of a good or a service.
The price at which an entity would sell a promised good or service separately to a customer.
The best evidence of standalone selling price is the price that the entity charges for the good or service in a separate transaction with a customer. However, in many cases goods or services are sold exclusively as a package with other goods or services rather than on an individual basis (e.g. nonrenewable customer support). In these cases, the standalone selling price must be estimated. The revenue standard does not prohibit any method for estimating the standalone selling price, as long as the estimation results in an accurate representation of what price would be charged in a separate transaction.
However, the standard does include the following three examples of suitable estimation methods:
- Adjusted market assessment approach- considers the market in which the goods or services are sold and estimates the price that a customer of that market would be willing to pay. This method is suitable in situations where a competitor offers similar goods or services to use as a basis in the analysis.
- Expected cost plus margin approach- considers the forecasted costs of fulfilling the performance obligation and adds margin at the amount the market would be willing to pay. This method may be most suitable in situations where (1) the demand for the good or service is unknown and information on the demand for similar goods or services from competitors is not available and/or (2) the direct fulfillment costs are clearly identifiable.
- Residual approach- allows an entity that has observable standalone selling prices for one or more of the performance obligations to allocate the remaining transaction price to the goods or services that do not have observable standalone selling prices. The sum of the observable standalone selling prices are deducted from the total transaction price to find the residual estimated standalone selling price for the goods or services that do not have observable standalone selling prices. The residual approach can only be used if (1) the entity sells the same good or service to multiple customers for a wide variety of prices (highly variable) or (2) the entity has not established a price for that good or service and the good or service has not been sold previously on a standalone basis. The residual approach is intentionally limited to ensure that companies first attempt to utilize another acceptable method to reach a reasonable estimation.
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