Home IFRS 15 Ep 04 — Allocating the Price
Episode 04 · 8 min Step 4 · Allocate the price

Splitting GH₵795,000 Across Three Performance Obligations

// Standalone selling prices · proportional allocation · the discount

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GH₵ 1 · Contract 2 · Obligations 3 · Price 4 · Allocate 5 · Recognise EPISODE 04 · IFRS 15 · STEP 4 Allocating the Price GH₵795,000 split across three obligations — by relative standalone price. PRESS PLAY ▶ RECAP · EPISODES 01–03 WHERE WE ARE Contract ✓ · 3 POs ✓ · Transaction price ✓ The Completed Home · Warranty Service · Maintenance Service GH₵ 795,000 → TODAY: SPLIT IT ACROSS THE 3 POs IFRS 15.73 · Allocate by relative standalone selling prices — each PO gets its proportional share. IFRS 15.74 · THE ALLOCATION RULE EACH PO'S SHARE PO share = ( PO standalone price ) ( Sum of all standalones ) × Transaction price SIMPLE PROPORTIONAL ALLOCATION First we need standalone selling prices for each obligation. What would each item cost if TerraGold sold it on its own? Three POs · three standalone prices · one total to split. IFRS 15.77 · STANDALONE SELLING PRICE DEFINITION "The price at which an entity would sell that good or service separately to a customer." — IFRS 15 PARAGRAPH 77 IN PLAIN LANGUAGE If TerraGold sold ONLY the warranty service to someone — what would they charge? If they sold ONLY the maintenance — what would they charge? If they sold ONLY the home (without the extras) — what would they charge? Those three numbers are the standalone selling prices. IFRS 15.78 · THREE WAYS TO ESTIMATE A STANDALONE PRICE Use the most reliable evidence available. METHOD 01 Adjusted Market Assessment Look at competitor prices for similar items in the market. Best when there is a healthy market for the good or service. → MOST PREFERRED METHOD 02 Expected Cost-Plus Margin Forecast direct cost plus a reasonable profit margin. For services and items with no clear market comparator. → FOR THE WARRANTY METHOD 03 Residual Approach Total minus the known standalone prices — whatever is left. Last resort. Allowed only when prices are highly variable. → USE WITH CAUTION TerraGold uses Methods 1 and 2 — direct market evidence and cost-plus. TERRAGOLD'S STANDALONE PRICES What each obligation would cost if sold separately. PO 01 · THE COMPLETED HOME 730,000 METHOD · MARKET COMPARABLES Similar new 3-bed homes in East Legon estates currently sell for ~730k. 91.25% of total PO 02 · WARRANTY SERVICE 40,000 METHOD · COST PLUS MARGIN Third-party home-warranty providers price 24-month cover at ~40k for similar. 5% of total PO 03 · COMMON-AREA SERVICE 30,000 METHOD · MARKET COMPARABLES Property-management firms charge ~30k for one year of comparable service. 3.75% of total Total standalone = 730 + 40 + 30 = GH₵800,000 THE DISCOUNT · STANDALONE 800K vs PRICE 795K SUM OF STANDALONES GH₵ 800,000 730k home + 40k warranty + 30k maintenance TRANSACTION PRICE GH₵ 795,000 From Episode 3 — after late-delivery adjustment DIFFERENCE = DISCOUNT TO ALLOCATE GH₵ 5,000 Spread proportionally across the three POs. IFRS 15.81 — discounts go to the obligations that gave rise to them. PROPORTIONS · EACH PO'S SHARE OF GH₵795,000 TRANSACTION PRICE · GH₵ 795,000 The Completed Home — 725,438 91.25% × 795,000 War. 39,750 Mtc. 29,813 0 200,000 400,000 600,000 800,000 THE CALCULATIONS Home: 730,000 / 800,000 × 795,000 = 725,438 Warranty: 40,000 / 800,000 × 795,000 = 39,750 Maintenance: 30,000 / 800,000 × 795,000 = 29,813 (rounded) Total: 725,438 + 39,750 + 29,813 = 795,001 ≈ 795,000 FINAL ALLOCATION · GH₵795,000 SPLIT THREE WAYS PO 01 · THE COMPLETED HOME 725,438 91.25% OF CONTRACT From standalone 730,000 less ~4,562 of the discount. PO 02 · WARRANTY SERVICE 39,750 5% OF CONTRACT From standalone 40,000 less ~250 of the discount. PO 03 · COMMON-AREA SERVICE 29,813 3.75% OF CONTRACT From standalone 30,000 less ~187 of the discount. VERIFICATION 725,438 + 39,750 + 29,813 = GH₵ 795,001 ≈ 795,000 ✓ Each PO now carries its own labelled price — ready for revenue recognition. KEY TAKEAWAY Allocate the price by relative standalone selling prices. · Estimate each PO's standalone price. · Compute the proportions. · Apply to the transaction price. · Discounts spread proportionally. TAKE THE QUIZ → Pass the quiz to earn your CPD certificate. RESULT 3 POs labelled · ready for Step 5
NARRATOR · KOJO Welcome to Episode 1 of IFRS 15. Press the play button below to begin.
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