The examples in Topic 606 about the significant financing component guidance include scenarios in which there is a single performance obligation. Stakeholders have raised questions about how to apply the guidance when there are multiple performance obligations. Specifically, the key question stakeholders have raised is whether an adjustment for a significant financing component should ever be attributed to only one or some of the performance obligations in the contract, rather than to all of the performance obligations in the contract.

Identifying and accounting for significant financing components is part of determining the transaction price (that is, it is part of Step 3 of the revenue model). The transaction price is defined in paragraph 606-10-32-2 as the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services. That is, when determining the transaction price, the effect of financing would be excluded because the financing component (interest expense or interest income) is in exchange for financing, rather than for the exchange of promised goods or services and is a separate component of the contract apart from the revenue generation for goods and service.

After determining the total transaction price for the contract, the entity would allocate the transaction price to performance obligations in Step 4. For example, if the consideration in a contract is CU100 and an entity determines that the interest component (significant benefit received by the customer) is CU10, then the transaction price is CU90. The standard requires allocation of the transaction price to the performance obligations in the contract on a relative standalone selling price basis in most cases. However, the standard also requires allocation of a bundled discount and allocation of variable consideration on a basis other than relative standalone selling price when specified criteria in the paragraphs referenced above are met.

The staff thinks it would be reasonable to attribute a significant financing component to one or more, but not all, of the performance obligations, by analogy to the allocation of variable consideration or allocation of a discount guidance. That is, it might be possible to determine that a significant financing component relates specifically to one (or some) of the performance obligations in the contract. Attribution of a financing component to one (or some) of the performance obligations will require the use of judgment. Attributing the effect of the significant financing component entirely to one (or some) performance obligations might produce an allocation result that is more consistent with the overall allocation objective in paragraph 606-10-32-28.

The standard is clear that when determining the transaction price, the effect of financing is excluded from the transaction price before the allocation of the transaction price to performance obligations. TRG members agreed with the staff views that it may be reasonable in some circumstances to attribute a significant financing component to one or more, but not all, of the performance obligations in the contract. Some TRG members agreed that, practically, this might be in a manner analogous to the guidance on allocating variable consideration or allocating a discount.