238 SECTION 1 The Role of Accounting as an Information System Assume the same facts as in Illustration 5–7 . Do the Tri-Box module and the Tri-Net subscription qualify as performance obligations in TrueTech’s contract with CompStores? Which of the goods and services promised in the contract are distinct? Both the Tri- Box module and the Tri-Net subscription can be used on their own by a customer, so they are capable of being distinct and are separately identifiable. Conclusion: The module and subscription are distinct so the contract has two performance obligations: (1) delivery of Tri-Box modules and (2) fulfillment of one-year Tri-Net subscriptions. Illustration 5–8 Determining Whether Goods and Services Are Distinct Step 3: Determine the Transaction Price The transaction price is the amount the seller expects to be entitled to receive from the customer in exchange for providing goods and services. 12 Determining the transaction price is simple if the customer pays a fixed amount immediately or soon after the sale. That’s the case with our TrueTech example. The transaction price is $250,000, equal to $250 per system 3 1,000 systems. Step 4: Allocate the Transaction Price to Each Performance Obligation If a contract includes more than one performance obligation, the seller allocates the transaction price to each one in proportion to the stand-alone selling prices of the goods or services underlying all the performance obligations in the contract. The stand-alone selling price is the amount at which the good or service is sold separately under similar circumstances. 13 If a stand-alone selling price can’t be directly observed, the seller should estimate it. Look at Illustration 5–9 to see how we allocate the transaction price to each of the performance obligations in our TrueTech example. The transaction price is the amount the seller expects to be entitled to receive from the customer in exchange for providing goods and services. Assume the same facts as in Illustration 5–7 . Because the stand-alone price of the Tri-Box module ($240) represents 80% of the total of all the stand-alone selling prices ($240 4 $240 1 60), and the Tri-Net subscription comprises 20% of the total ($60 4 $240 1 60), we allocate 80% of the transaction price to the Tri-Box modules and 20% of the transaction price to the Tri-Net subscriptions, as follows: $250 Transaction Price 80% 20% $200 Tri-Box Module $50 Tri-Net Subscriptions 12 Normally, sellers are immediately or eventually paid in cash, but sometimes sellers are paid with other assets like property. In that case, the seller measures the assets received at fair value. We allocate the transaction price to performance obligations in proportion to their relative stand-alone selling prices. 13 A contractually stated “list price” doesn’t necessarily represent a stand-alone selling price, because the seller might actually sell the good or service for a different amount. The seller has to reference actual stand-alone selling prices, or estimate those prices. Illustration 5–9 Allocating Transaction Price to Performance Obligations Based on Relative Selling Prices itself causes them to be more appropriately thought of as being provided together as a single performance obligation.11 In Illustration 5–8 we apply these criteria to identify the performance obligations for our TrueTech example. 11Sellers also treat as a single performance obligation a series of distinct goods or services that are substantially the same and have the same pattern of transfer.
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