What amount of the transaction price should Palm allocate to each performance obligation?
Inventors sells two of its patents in a contract with a retailer that sells toys and other children's products.
The first is a patent for a super absorbent diaper and the second is a patent for a new digital toy. Palm determines that each of these patents comprises a separate performance obligation. The estimated standalone selling prices are $7 million for the diaper patent and $2 million for the digital toy patent. The stated price in the contract for the diaper patent is a fixed payment of $3.3 million. The price stated for the digital toy patent is 10% of the customer's future sales of the toys. Palm estimates the variable consideration for this patent as $3.7 million. During the current year, the customer has sales related to the toy patent of $20.0 million, resulting in a $2 million payment to Palm inventors and a total consideration of $5.3 million.
What amount of the transaction price should Palm allocate to each performance obligation?
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Patent
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Standalone Selling Price (in millions)
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Percentage Standalone Selling price to Total Price
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Allocation of Fixed Consideration
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Allocation of Current Year Variable Consideration
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Total Consideration
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Diaper
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million
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%
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Toy
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million
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%
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Total
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million
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%
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