The underlying principle of the new standard is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services.
The standard consists of a five-step approach as follows:
Fig : 5 steps Framework
Last post we have seen step 1 and step 2
- ( ASC 606 ) Step1 : Identify the contract with a customer 
- ( ASC 606 ) Step2 : Identify the performance obligations in the contract 
- ( ASC 606 ) Step3 : Determine the transaction price 
Lets take a quick look on Step 4 which is Allocation of Transaction Price
ALLOCATE THE TRANSACTION PRICE
Step 4 allocates the transaction price to the distinct POBs in a contract. An entity typically allocates the transaction price to each POB based on the relative standalone selling prices of each distinct good or service promised in the contract.
If a contract has more than one performance obligation, the business needs to provide an accurate estimation as to that obligation’s standalone selling price versus the total agreed upon amount.
ASC 606 allows for includes three methods of figuring this amount—adjustment market assessment, expected cost plus margin, and residual.
To be continued