Question

Allocating the Transaction Price – Range of Prices Assume the same facts as in Case 5-5 except that Skippers Landing sells the boats on a stand-alone basis for $58,000–$64,000 each. As a result, Skippers Landing determines that the stand-alone selling price for the boat is a range between $58,000 and $64,000. Skippers Landing enters into a contract to sell a boat and one year of mooring services to a customer. The stated contract prices for the boat and the mooring services are $62,000 and $3,000, respectively.

Required: How should Skippers Landing allocate the total transaction price of $65,000 to each performance obligation?

Answer 1

The skippers landing should allocate the total transaction price between the price for the boat and for the mooring services in the ratio of stand alone selling price of each of the performance obligation.

The stand alone price of boat is 62,000 and the standalone price of mooring services is 3,000. Hence the total transaction price should be allocated in the ratio of 62,000 and 3,000 respectively.