Question

Under which of the following circumstances is it most appropriate to use the residual method to estimate stand-alone selling prices?

Multiple Choice

• The seller hasn't previously sold the product and hasn't determined a price for it.

• The seller provides the product bundled with other goods or services.

• The seller does not have competitors from which to observe market prices of similar products.

• The seller is unable to accurately estimate variable consideration associated with the contract.

Answer 1

The seller hasn't previously sold the product and hasn't determined a price for it.

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 under one of the following circumstances,

• There is a wide variety of prices for the same good or service to multiple customers.
• The good or service has never been sold previously on a standalone basis and there is no established price for that good or service.