The standalone selling price (“SSP”) represents the price at which an entity would sell a promised good or service separately to a customer. The best evidence of the SSP would be if the entity sells the good or service separately under similar circumstances and to similar customers. However, it is not necessary that the entity sell the promised good or service (or bundle of promised goods or services) separately to be able to determine a SSP. In this instance where a SSP is not directly observable, an entity shall estimate the SSP. Entities should consider all available facts and maximize reliance on observable inputs.
There are three methods listed in ASC 606 for estimating the SSP, but other methods may exist. The listed methods include:
Adjusted market assessment approach – In summary, entities consider the market they sell promised goods or services (or bundle thereof) and estimate the amount they could charge. Entities may reference the prices their competitors or peers are charging when developing this estimate.
Expected cost plus a margin approach – Entities may estimate their expected costs of satisfying a performance obligation and then apply an estimated profit margin for the good or service.
Residual approach – If the SSP of all other performance obligations is known, then the SSP of a remaining SSP maybe estimated by using the residual approach (i.e., allocating the transaction price that has not been allocated to other performance obligations to remaining performance obligations. This method is allowed, but only when two criteria are met. They are as follows:
If the performance obligations is a purchase option, then if the purchase option is the right to acquire future goods or services that are similar to the original goods or services and are provided in accordance with the terms of the original contract, then as a practical expedient, the reporting entity may value the option by reference to the goods or services expected to be provided and the related consideration rather than separately valuing the option.ASC 606-10-32-31 through 32-34 and ASC 606-10-55-45
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