Question

017-3 Stand-Alone Selling Price LO 17.4. Luke's Gameday Company sells a package of goods and services to its customers. The package includes four FCS Championship football tickets, a reserved parking space, a pregame party, and four pregame sideline passes. The package sells for $18,000. Because the stand-alone selling for the pregame party and sideline passes is not obsery- able, Luke's Gameday Company is interested in determining how to allocate the transaction price to each underlying performance obligation, Required: Discuss what methods are available for estimating a stand-alone selling price for a good or service when the stand-alone selling price is not directly observable. Which method is preferred

Answer 1

The methods that are available for estimating a standalone selling price for a good or service are as under:

1. Adjusted market assessment approach—an entity could evaluate the market in which it sells goods or services and estimate the price that a customer in that market would be willing to pay for those goods or services.

2. Expected cost plus a margin approach—an entity could forecast its expected costs of satisfying a performance obligation and then add an appropriate margin for that good or service.

3. Residual approach—an entity may estimate the stand-alone selling price by reference to (1) the total transaction price, less (2) the sum of the observable stand-alone selling prices of other goods or services promised in the contract.

The most preferred method would be adjusted market assessment approach.