(ASC 606 / IFRS 15 Perspective)
Subscription-based business models require a precise translation of commercial pricing constructs into accounting-compliant revenue data. Under ASC 606 and IFRS 15, this translation must ensure that revenue reflects the transfer of promised goods or services to customers in an amount that depicts the consideration to which the entity expects to be entitled.
This whitepaper defines and explains the foundational commercial concepts used in Subscription Management and Revenue Management systems—Unit of Measure, Price Periodicity, Service Duration, Unit Selling Price, Unit List Price, and Line Amount—and demonstrates how they interact to produce accounting-ready revenue lines. The paper is intended for product teams, finance stakeholders, implementation partners, and customers adopting subscription and usage-based pricing models.
1. Business and Accounting Context
Modern subscription platforms act as the system of commercial truth, while revenue management systems act as the system of accounting truth. To support ASC 606 and IFRS 15 compliance, subscription data must:
- Represent enforceable rights and obligations
- Quantify consideration accurately
- Support contract modifications and revisions
- Enable systematic and rational revenue recognition
The concepts described in this paper form the common language between commercial systems and revenue accounting engines.
2. Unit of Measure (UOM)
Definition
Unit of Measure (UOM) defines the base unit that is being sold and delivered. It represents what the customer is paying for.
It answers the question:
“Price per what?”
In subscription and revenue management, UOM determines how quantity is expressed and multiplied into monetary value.
Common Examples
- Each (device, asset, license)
- User
- Seat
- GB
- Hour
Role in Revenue Management
- Establishes the quantity dimension of a revenue line
- Ensures consistency across pricing, billing, and revenue recognition
- Supports allocation and reconciliation
Example
- UOM: Each
- Quantity: 5 laptops
3. Price Periodicity
Definition
Price Periodicity defines the time interval to which the unit price applies. It represents how often the price is charged.
It answers the question:
“Price per which time period?”
Common Examples
- Year
- Month
- Week
- Day
Role in Revenue Management
- Converts time-based services into monetary values
- Enables proration, renewals, upgrades, and downgrades
- Drives revenue schedules and time-based recognition patterns
Example
- Price: $100 per laptop per year
- Price Periodicity: Year
4. Service Duration
Definition
Service Duration represents the length of time the service is provided, expressed in terms of the defined price periodicity.
Service Duration must always be expressed in the same unit as Price Periodicity.
It answers the question:
“How many price periods does this service last?”
Role in Revenue Management
- Quantifies the total service commitment
- Drives contract value and revenue scheduling
- Enables accurate handling of contract modifications
Example
- Price Periodicity: Year
- Service Duration: 3
- Meaning: 3 years of service
5. Unit Selling Price (USP)
Definition
Unit Selling Price is the actual transaction price charged to the customer:
- Per Unit of Measure
- Per Price Periodicity
This price reflects negotiated discounts, promotions, or customer-specific pricing.
This is the price agreed with the customer.
Role in Revenue Management
- Forms the basis of the transaction price under ASC 606 / IFRS 15
- Drives invoicing and revenue allocation
- May differ from standalone selling price
Example
- Unit Selling Price: $100
- Meaning: $100 per unit per year
6. Unit List Price
Definition
Unit List Price is the standard, undiscounted price published by the entity.
ASC 606 / IFRS 15 Relevance
- Commonly used as a proxy for Standalone Selling Price (SSP)
- Particularly relevant when observable SSP is not directly available
- Provides consistency and auditability
Default System Behavior
In many subscription systems, the Unit List Price is assigned as the Unit SSP by default, unless explicitly overridden.
Example
- Unit List Price: $120 per unit per year
- Unit Selling Price: $100 per unit per year
7. Line Amount
Definition
Line Amount represents the total contractual value of a subscription line sent from Subscription Management to Revenue Management.
Calculation Logic
When Service Duration and Price Periodicity are Provided
Line Amount = Quantity × Service Duration × Unit Selling Price
When Service Duration and Price Periodicity Are Not Provided
Line Amount = Quantity × Unit Selling Price
Role in Revenue Management
- Represents the transaction price for the performance obligation
- Serves as the basis for revenue allocation and recognition
8. Primary Example: Multi-Year Extended Warranty
Business Scenario
A customer purchases a three-year extended warranty for five laptops. The price is $100 per laptop per year.
Revenue Line Representation
| Field | Value |
| Unit of Measure | Each |
| Price Periodicity | Year |
| Quantity | 5 |
| Service Duration | 3 |
| Unit Selling Price | $100 |
Line Amount Calculation
5 × 3 × 100 = 1,500 USD
Interpretation
- Pricing is annual and unit-based
- Service spans three years
- Total contract value equals $1,500
9. Additional Subscription Scenarios
Example 1: Monthly SaaS Subscription
Scenario
- 10 users
- $20 per user per month
- 12-month subscription
| Field | Value |
| Unit of Measure | User |
| Price Periodicity | Month |
| Quantity | 10 |
| Service Duration | 12 |
| Unit Selling Price | $20 |
Line Amount = 10 × 12 × 20 = 2,400 USD
Example 2: Subscription Without Service Duration
Scenario
- 50 licenses
- $200 per license
- No explicit duration provided
| Field | Value |
| Unit of Measure | Each |
| Quantity | 50 |
| Unit Selling Price | $200 |
Line Amount = 50 × 200 = 10,000 USD
In this case, Revenue Management calculates selling price and extended SSP as Quantity × Unit SSP.
10. Contract Modifications and Revisions
If there is a change in Service Duration or Price Periodicity that impacts the contract value, the source subscription system sends the change as a revision line to Revenue Management.
Revenue Management then:
- Reassesses remaining consideration
- Adjusts revenue schedules
- Applies prospective or retrospective treatment based on accounting policy
This ensures continued compliance with ASC 606 / IFRS 15 contract modification guidance.
11. Key Design and Implementation Takeaways
- Unit of Measure and Price Periodicity define the pricing axis
- Service Duration translates time-based commitments into value
- Unit Selling Price reflects the transaction price
- Unit List Price supports SSP determination
- Line Amount must always be mathematically deterministic and auditable
- Contract changes must be handled as first-class revisions
Conclusion
Clear, consistent definitions of commercial constructs are essential for scalable subscription platforms and compliant revenue recognition. By standardizing how Unit of Measure, pricing cadence, duration, and prices interact, organizations can ensure accurate billing, predictable revenue recognition, and audit-ready compliance with ASC 606 and IFRS 15.
These concepts form the foundation upon which advanced capabilities—such as allocation, variable consideration, and performance obligation management—are built.
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