The Standalone Selling Price is the price at which the entity would sell a good or service separately to a customer. As per the New Revenue Standard, all Standalone Selling Prices need to be estimated if the selling price is not readily available.
When to use a standalone selling price?
The good or service has never been sold previously on a standalone basis and there is no established price for that good or service. This approach needs to be used at a lower priority and companies should first attempt to utilize another acceptable method to get a reasonable estimated Standalone Selling Price.
What is standalone selling price (SSP)?
The Standalone Selling Price is the price at which the entity would sell a good or service separately to a customer. As per the New Revenue Standard, all Standalone Selling Prices need to be estimated if the selling price is not readily available.
How to calculate standalone selling price using residual approach?
Under the Residual Approach method, Standalone Selling Price is estimated by subtracting the sum of all observable Standalone Selling Prices of other goods or services promised from the total transaction price. The Residual approach can only be used if one of the below criteria is met:
When should the standalone selling price of a contract be updated?
Regardless of the approach used, the standalone selling price must be determined at the outset of the contract and should not be updated to reflect changes between contract inception and performance completion, with the exception of contract modifications (for more information see Contract Modifications).
How is stand alone price calculated?
The best evidence of standalone selling price is the price a reporting entity charges for that good or service when the reporting entity sells it separately in similar circumstances to similar customers. However, goods or services are not always sold separately.
Why is standalone selling price important?
The standalone selling price is the price at which the entity would sell a promised good or service individually to a customer. ASC 606 Revenue from Contracts with Customers (ASC 606) requires companies to estimate the SSP if the selling price is not readily observable.
What is the best evidence of standalone selling price?
The best evidence of a standalone selling price is the observable price of a good or service when the entity sells that good or service separately in similar circumstances and to similar customers.
What is SSP in accounting?
The Standalone Selling Price (SSP) is a key element of the IFRS15 / ASC 606 accounting standard. The SSP is used as a 'weighting' factor to allocate the total revenue accounting contract transaction value to the performance obligations (POBs) and underlying assigned sales document items.
Can you sell for less than RRP?
As a retailer, you are free to sell above or below this price, but there are some important legal requirements to take into account (remember, if you're ever in doubt, your best bet is to seek professional legal advice).
Why do sellers hide their price?
The main reason retailers do this is because they have agreements with the manufacturers that prohibit them from displaying prices online. The retailer wants customers to know they have the item, but they aren't allowed to show the cost.
How do you calculate SSP?
Under the Residual Approach method, Standalone Selling Price is estimated by subtracting the sum of all observable Standalone Selling Prices of other goods or services promised from the total transaction price.
What is the difference between selling price and original price?
Markup is the amount of difference between an item's cost and its selling price.
What is the easiest way to find selling price?
How to Calculate Selling Price Per Unit. Determine the total cost of all units purchased. Divide the total cost by the number of units purchased to get the cost price. Use the selling price formula to calculate the final price: Selling Price = Cost Price + Profit Margin.
What does SSP mean in wholesale?
wholesale priceWSP (wholesale price) – this indicates that the entry in the PriceValue column will be a wholesale price. DMRP (deemed minimum retail price) – this indicates that the entry in the PriceValue column will be a retail price.
What is RRP and SSP?
Suggested retail price. Suggested selling price. Different ways of saying the same thing.
What is SSP in Organisation?
Statutory Sick Pay (SSP) Employers are required by law to pay an amount of sick pay to any employee who is absent due to sickness. This is known as Statutory Sick Pay or SSP.
Why is it important to set selling price of products?
Your selling price needs to be able to keep you in business. If products are set at a high price and potential customers don't buy, you'll lose market share. If you set your prices too low, you'll be selling at a loss, or at an unsustainable profit margin.
What is a stand alone selling price and how does it affect the accounting?
What is the stand-alone selling price? The best evidence of stand-alone selling price is the observable price at which the good or service is sold separately by the entity in similar circumstances, to similar customers in a single transaction.
Why is it important to set initial price?
A product's price sets a signal to consumers and determines the value that they associate with it. Using an initial price that is imperfect can thus negatively impact your future sales.
What are the advantages of everyday low pricing?
Advantages of Everyday Low PricingDemand forecasting. EDLP helps stores reduce demand fluctuations that would normally occur during sales promotions. ... Marketing costs. Advertising is less expensive as stores do not need to individually promote each sale item and advertise sale events. ... Staffing efforts.
When to determine stand alone selling price?
The Standalone Selling Price needs to be determined at the outset of the contract regardless of the approach used. The management team should consider all available information and maximize observable inputs to identify the most suitable approach to use. If there is no observable Standalone Selling Price then a company can use a combination of approaches to determine Standalone Selling Price for each Performance Obligation.
Why was the non-observable price hierarchy removed?
In the Revenue Standard, the non-observable price hierarchy has been removed to allow any reasonable estimation method. To further simplify the process, it has also removed the need for Industry-specific guidance on Standalone Selling Price and now with the New Standard the same guidance applies for all Industries.
Do you estimate the selling price of a product if it is not readily available?
As per the New Revenue Standard, all Standalone Selling Prices need to be estimated if the selling price is not readily available. The estimation method used should be consistently applied in similar circumstances and it should include as much available information as possible, including Market Conditions and entity/customer specific factors. However, Accounting Standard Codification (ASC) 606 provides three standard methods to estimate the Standalone Selling Price as listed below:
Highly variable or uncertain pricing
ASC 606 generally requires entities to allocate a contract’s transaction price among distinct performance obligations by using the relative standalone selling price of each distinct performance obligation. However, certain goods or services can be sold for a wide range of prices, which may make it difficult to establish the SSPs.
Establishing the standalone selling price as a range
Step four of the five-step process under ASC 606 requires entities to determine the standalone selling price for each performance obligation in a contract so that the appropriate amount of revenue may be recognized.
Estimating standalone selling prices for term-based licenses and post-contract customer support
Estimating the standalone selling prices of performance obligations is one area of increased complexity and challenge for software companies under ASC 606, particularly for term-based licenses and postcontract customer support (PCS).
Residual approach to estimating standalone selling prices and allocating the transaction price when a value relationship exists
As discussed in previous Technology Alerts, establishing the SSP is an area of increased complexity for software companies as they implement the requirements of the revenue recognition standard.
Deloitte Accounting Research Tool (DART)
Deloitte also provides the Deloitte Accounting Research Tool (DART), a comprehensive online library of accounting and financial disclosure literature to clients.
Get in touch
As the Audit & Assurance Technology, Media & Telecommunications (TMT) industry leader with Deloitte & Touche LLP, Christie has almost 30 years of experience serving global technology clients. She is a... More
What is standalone selling price?
The best evidence of standalone selling price is the price a reporting entity charges for that good or service when the reporting entity sells it separately in similar circumstances to similar customers. However, goods or services are not always sold separately. The standalone selling price needs to be estimated or derived by other means if ...
When does the standalone selling price need to be estimated?
The standalone selling price needs to be estimated or derived by other means if the good or service is not sold separately. This estimate often requires judgment, such as when specialized goods or services are sold only as part of a bundled arrangement.
How to allocate transaction price to each performance obligation?
To allocate the transaction price to each performance obligation on a relative standalone selling price basis, an entity shall determine the standalone selling price at contract inception of the distinct good or service underlying each performance obligation in the contract and allocate the transaction price in proportion to those standalone selling prices.
Why is transaction price not reallocated?
The transaction price is not reallocated after contract inception to reflect subsequent changes in standalone selling prices. A contractually stated price or list price for a good or service may be, but should not be presumed to be, the standalone selling price of the good or service. Reporting entities often provide discounts or other adjustments ...
When to use range of prices?
We believe it would be acceptable for a reporting entity to use a range of prices when determining the standalone selling prices of individual goods or services , provided that the range reflects reasonable pricing of each product or service as if it were priced on a standalone basis for similar customers.
Is a range of selling prices consistent with the overall allocation objective?
The allocation guidance does not specifically refer to the use of a range , but we believe using a range of standalone selling prices is consistent with the overall allocation objective. Reporting entities will need to apply judgment to determine an appropriate range of standalone selling prices.
Can a contractual price be considered a standalone selling price?
If a reporting entity decides to use a range to determine standalone selling prices, the contractual price can be considered the standalone selling price if it falls within the range. There may, however, be situations in which the contractual price of a good or service is outside of that range. In those cases, reporting entities should apply ...
What is a standalone selling price?
The Standalone Selling Price (SSP) is a key element of the IFRS15 / ASC 606 accounting standard. The SSP is used as a ‘weighting’ factor to allocate the total revenue accounting contract transaction value to the performance obligations (POBs) and underlying assigned sales document items. The standalone selling prices are to be determined at contract inception and thereafter to be kept fixed. SAP Business ByDesign provides multiple capabilities to set the SSP according to his business scenarios and needs.
What is a sales order?
A sales order or customer contract is entered into the system. The system has not determined a price for the given customer / product combination. This is a common case in business scenarios like:
What happens after a sales document is released?
After a sales document is released, the revenue accounting contract gets released as well and the initial SSP derived from CRM is locked.
Where is the manual SSP amount in Revenue Accounting Contract?
In the allocation shown at the Revenue Accounting Contract, manual SSP amounts are displayed in the right column.
Can SAP Business ByDesign be used as SSP?
SAP Business ByDesign has also foreseen capabilities that customers can implement their own SSP derivation strategy using PDI.
What are the advantages of selling through a large online retailer?
Distribution Channel – Another advantage of selling through a large online retailer is a simplified distribution channel . Although the pressures to fill orders and move product are high when working with large retailers, companies can get their products into the hands of a large number of customers through a single bulk delivery to a single warehouse. Because SmartHomes works with a large retailer, the costs associated with the distribution channel are significantly lower than their competitors working with small retailers, which will allow SmartHomes to meet profit objectives at a lower price.
What is revenue standard?
The revenue standard allows the residual approach to be used to estimate the aggregate standalone selling prices of multiple items (in this case, the HUB/App and the telephone support together). Once the aggregate amount has been ascertained, other estimation methods may be used to determine the individual standalone selling prices of the aggregated items. Using the residual method in this case, the post-contract maintenance should be allocated $20 because that item is frequently sold separately and has an observable price.
How much does SmartHomes allocate to PCS?
SmartHomes allocates $20 to PCS maintenance based on the observable price it charges its customers. The company uses the residual approach to determine an aggregate standalone selling price for the HUB/SmartHomes app and telephone support, which ensures that the maintenance is allocated the full observable price of $20. After determining the aggregate standalone selling price of the HUB and telephone support, SmartHomes uses the adjusted-market assessment approach to determine the standalone selling price of the HUB ($60) and the cost-plus margin approach to determine the standalone selling price of the telephone support ($10). Using these values, SmartHomes applies the relative standalone selling price method to determine the amount of the remaining transaction price ($60) that should be allocated to the HUB ($51) and to the telephone support ($9). The following table summarizes the price allocation in this transaction.
How much does SmartHomes charge for maintenance?
SmartHomes regularly sells the post-contract maintenance for a price of $20 per year with an option to renew the contract at the end of each year. Because this is the only price that SmartHomes offered for maintenance over the past year, the entity concludes that it has observable evidence to establish $20 as the SSP for the post-contract maintenance.
What is an adjusted market assessment approach?
Adjusted market assessment approach: The Company’s software licenses contain proprietary technology that highly differentiates its licenses from the offerings of its competitors. Moreover, each of the Company’s individual products does not have direct correlation with other products available in an observable market. The Company’s solution and offering are different from those of competitors, which make use of market competitor pricing even less relevant. Although published competitor list price information may be available, actual selling price information is not. Based upon the results of this analysis, the adjusted market assessment approach would not provide for appropriate use of observable internal company inputs and/or third-party sales inputs in estimating SSP for the Company’s licenses.
How does the company calculate the cost of warranty services?
The Company uses historical data on complaints and dispute resolution requests in addition to the number of homes enrolled to calculate the percentage of complaints and dispute resolution requests received per enrollment per year of warranty coverage. This is then applied to all homes enrolled that are currently under warranty coverage to estimate the number of complaints and dispute resolution requests to be received by year until coverage expires. The Company then calculates the average hourly cost of providing these ongoing services using actual payroll and other operating costs associated with those personnel performing these services, net of the additional average administrative fee the Company receives for the dispute resolution related services, along with an estimate of the actual time spent on handling a complaint or dispute resolution request . A fully loaded cost is then calculated and applied to the estimates of complaints and dispute resolution requests over the remaining coverage period to estimate the total actual costs associated with the other warranty services performance obligation. To this cost, an estimated margin is applied based on the average profit margin on the Company’s revenue over a four-year period. This margin is applied to the estimated total cost to arrive at an estimated cost plus margin amount. This cost plus margin amount is allocated to the other warranty services performance obligation and recorded as the homebuilder warranty service fee. The remainder of the transaction price, after allocating the portion to the other warranty services obligation, is allocated to the warranty administrative services performance obligation and recorded as the homebuilder warranty administrative fee. ( August 2018)
Does ASC 606 require a single method to estimate standalone selling prices?
ASC 606 does not prescribe a single method to estimate standalone selling prices but rather requires entities to come to an appropriate estimate based on the facts and circumstances.