9
Final standard Current US GAAP Current IFRS
The transaction price is allocated to
separate performance obligations in a
contract based on relative stand-alone
selling prices. The stand-alone selling
price is the price at which the entity
would sell a good or service separately
to the customer. The best evidence of
stand-alone selling price is the
observable price of a good or service
when the entity sells that good or
service separately.
Entities will need to estimate the
selling price if a stand-alone selling
price is not observable. In doing so,
the use of observable inputs is
maximised.
Possible estimation methods include:
• Expected cost plus reasonable
margin.
• Assessment of market price for
similar goods or services.
• Residual approach, in limited
circumstances.
A residual approach may be used to
estimate the stand-alone selling price
when the selling price of a good or
service is highly variable or uncertain.
A selling price is highly variable when
an entity sells the same good or
service to different customers (at or
near the same time) for a broad range
of amounts. A selling price is
uncertain when an entity has not yet
established a price for a good or
service and the good or service has
not previously been sold.
Arrangement consideration is
allocated to each unit of accounting
based on the relative selling price.
Third-party evidence (TPE) of fair
value is used to separate deliverables
when vendor-specific objective
evidence (VSOE) of fair value is not
available. Best estimate of selling
price is used if neither VSOE nor TPE
exist. The term ‘selling price’
indicates that the allocation of
revenue is based on entity-specific
assumptions rather than assumptions
of a marketplace participant. The
residual or reverse residual methods
are not allowed.
When performing the allocation using
the relative selling price method, the
amount of consideration allocated to
a delivered item is limited to the
consideration received that is not
contingent upon the delivery of
additional goods or services. This
limitation is known as the ‘contingent
revenue cap’.
Communications entities typically
account for the sale of the equipment
and telecom services in a bundled
offering as separate units of
accounting, with telecom services
collectively accounted for as a single
unit of account, as they are generally
delivered at the same time. The
arrangement consideration that can
be allocated to the equipment is
generally limited to cash received
because future cash receipts are
contingent upon the entity providing
telecom services. Therefore, when the
handset is transferred, revenue is
recognised at the amount that the
customer paid for the handset at
contract inception. The remaining
contractual payments are recognised
subsequently as the entity provides
network services to the customer.
Revenue is measured at the fair value
of the consideration received or
receivable. Fair value is the amount
for which an asset or liability could be
exchanged or settled, between
knowledgeable, willing parties in an
arm’s length transaction.
IFRS does not mandate how
consideration is allocated and permits
the use of the residual method, where
the consideration for the undelivered
element of the arrangement (normally
service or tariff) is deferred until the
service is provided, when this reflects
the economics of the transaction. Any
revenue allocated to the delivered
items is recognised at the point of
sale.