Revenue toolkit: Step four—Allocate the transaction price

In our Toolkit podcast series, we are taking a deep dive into one accounting topic each month that goes beyond the basics and into areas that require judgment. This month, we are covering each of the five steps in the revenue recognition model.In this episode, Heather Horn was joined by Angela Fergason and Mike Coleman, partners in PwC’s National Office, to discuss step four of revenue recognition: allocating the transaction price.In this episode, you will find:01:19 - The core objective of step four: allocating based on relative standalone selling price04:03 - Common approaches to estimating standalone selling price10:47 - How to apply the residual approach (for use in limited circumstances)15:03 - Special considerations for the allocation of discounts and variable consideration20:11 - The importance of consistency26:11 - Key tips about making judgments in your process of estimationWant to learn more? Listen to our previous Revenue toolkit episodes in which we discuss how to identify the contract, identify performance obligations, and determine the transaction price.Read chapter 5, Allocating the transaction price, in our Revenue from contracts with customers guide. Angela Fergason is a partner in PwC's National Office with over 20 years of experience who specializes in accounting for revenue and employee compensation arrangements. She also consults on a range of financial reporting issues impacting technology companies. Angela is a frequent speaker on accounting and financial reporting topics and is a contributor to many PwC National Office publications, including our accounting guides on revenue and stock-based compensation.Mike Coleman is a partner in PwC's National Office with over 30 years of experience. He specializes in accounting for revenue and software arrangements. Prior to his time in National, Mike was an audit partner in the firm's NY Metro assurance practice serving technology clients. In addition, he has been one of the firm's represented the firm on the AICPA Software Task Force. Heather Horn is PwC’s National Office thought leader, responsible for developing our communications strategy and conveying firm positions on accounting and financial reporting matters. She is the engaging host of PwC’s accounting and reporting weekly podcast and quarterly webcast series, as well as periodic webcasts for the power and utilities industry. With over 30 years of experience, Heather’s accounting and auditing expertise includes financial instruments and rate-regulated accounting.Transcripts available upon request for individuals who may need a disability-related accommodation. Please send requests to [email protected] you enjoy this episode? Text us your thoughts and be sure to include the episode name.