How should discounts be treated?

Generally, discounts are allocated to all performance obligations based on their relative standalone selling price (“SSP”). However, when there is objective evidence that the discount relates to one or more, but not all, performance obligations then the discount shall be allocated to fewer than all performance obligations, if certain criteria are met.

There are three criteria ALL of which must be met before the discount can be allocated to fewer than all performance obligations. In summary, those criteria are as follows:

As an option, the reporting entity can exclude taxes from consideration. If the reporting entity wants to include taxes, then additional analysis is required.

  1. An entity must regularly sell each distinct good or service (or bundle thereof) separately.
  2. An entity must regularly sell separately a bundle (or bundles) of some of those distinct goods or services at a discount to the SSP of the goods or services in each bundle.
  3. The discount attributable to each bundle of goods or service above is substantially the same as the discount in the contract, and there is observable evidence of the performance obligation(s) that the discount relates to.

ASC 606-10-32-36 thru 32-37

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