BC181 The boards decided that an entity should measure revenue based on an allocated transaction price approach. Using that approach, an entity allocates the transaction price to each performance obligation at an amount that depicts the amount of consideration to which the entity expects to be entitled in exchange for satisfying each performance obligation. That allocation determines the amount of revenue that an entity recognises when (or as) it satisfies each performance obligation. Most respondents supported the allocated transaction price approach.

BC182 The boards considered, but rejected, an alternative measurement approach, which would have been to measure the remaining performance obligations directly at the end of each reporting period. The boards observed that this alternative would have made accounting for the contract more complex. In addition, the boards expected that in many cases it would have provided users of financial statements with little additional information, either because the values of goods or services promised are not inherently volatile or because the effect of any volatility that might exist is limited when an entity transfers the goods or services to the customer over a relatively short time. Paragraphs BC25-BC27 include additional discussion on rejected measurement approaches.

BC183 The allocated transaction price approach generally requires an entity to follow three main steps to determine the amount of revenue that can be recognised for satisfied performance obligations. Those steps are as follows:

(a) determine the transaction price for the contract;