Which ASC 606 step requires allocation of the transaction price to each performance obligation?

• A. Allocate the transaction price to performance obligations
• B. Identify the contract
• C. Determine the transaction price
• D. Recognize revenue when satisfied

Answer: (A)

In ASC 606, revenue recognition follows a clear sequence: identify the contract, identify the performance obligations, determine the transaction price, allocate that price to the performance obligations, and then recognize revenue when each obligation is satisfied. The allocation step is the one where the total transaction price is distributed among the identified promises to transfer goods or services. This distribution is typically based on the relative standalone selling prices of each obligation, and it ensures that each obligation has a measurable share of the transaction price to recognize as revenue when that obligation is satisfied. So the step that requires allocating the transaction price to each performance obligation is the allocation step, performed after you determine the price and identify the obligations.