Noncash Consideration

In most business transactions, an entity receives cash in exchange for providing goods or services. However, many entities trade their goods or services for noncash consideration. Noncash consideration can take a variety of forms, including land, promised services, inventory, PP&E, and intangible assets. Equity instruments, such as stock, are the most common type of noncash consideration.

The purpose of this article is to analyze key accounting issues that arise under Accounting Standards Codification (ASC) 606 when recognizing revenue from transactions involving noncash consideration. These transactions mainly affect the third step of ASC 606, which is to determine the transaction price.

How and When to Measure Noncash Consideration

An entity that accepts noncash consideration in a revenue transaction follows the first two steps of the five-step method in the same manner as it would with cash consideration; the entity identifies the contract with the customer and then identifies the performance obligations. The third step—determining the transaction price—is where the nature of consideration has more of an impact on the entity’s approach to revenue recognition. For information about the other steps of the revenue recognition model, read The Five-Step Method.

The transaction price is the amount of consideration an entity expects to receive in exchange for transferring goods or services. Noncash consideration is measured at fair value at contract inception. Determining that fair value may require the use of valuation techniques when the amount is not readily observable. In some cases, more judgment will be needed to determine the fair value of the noncash consideration promised by the customer than the standalone selling price of the goods or services offered. To illustrate, publicly traded stock promised in exchange for equipment is likely easier to measure at fair value than the equipment itself would be. In contrast, a customer’s promise to transfer a piece of art as payment for a good or service may be more difficult to measure than the standalone selling price of the good or service. If an entity cannot reasonably determine the fair value of the promised noncash consideration, the standalone selling price of the goods or services promised to the customer is considered to be the transaction price (ASC 606-10-32-21 through 32-22).

The measurement date for determining the fair value of noncash consideration to be received from a customer is the date of contract inception, rather than the date when the noncash consideration is received or earned. The date of contract inception is the day that the criteria in ASC 606-10-25-1 are met (ASC 606-10-32-21). Read more about these criteria in Identify the Contract.

Denny's Corporation (2019 SEC Correspondence): Noncash Consideration Measurement

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In 2019, the SEC asked Denny’s Corporation to provide more information about the “valuation technique(s) and inputs used in the fair value measurement” of restaurant space (noncash consideration) in a new building developed by the buyer that was used as consideration in their exchange. Denny’s responded with the following explanation (August 2019 letter to the SEC):

In addition to the cash proceeds received on the sale of real estate during the first quarter, we also recorded additional noncash consideration for the fair value of restaurant space we expect to receive within a building being developed by the buyer of the real estate. The fair value of this space was determined using a market approach with Level 2 inputs based on third party appraisals of fair values of other similar properties. The $3.0 million of noncash consideration is recorded as a component of other noncurrent assets in our Condensed Consolidated Balance Sheets.

The fair value of the restaurant space was measured using a market approach with Level 2 inputs, including third-party appraisals of similar properties. Denny’s recognized $3.0 million of noncash consideration as other noncurrent assets on its balance sheet.

Importantly, this transaction is not within the scope of ASC 606. Because Denny’s is not in the business of selling real estate, the transaction is accounted for under ASC 610-20 (Gains and Losses from the Derecognition of Nonfinancial Assets). However, ASC 610-20 requires entities to apply certain measurement principles from ASC 606, including measuring noncash consideration at fair value at contract inception (see ASC 606-10-32-21 by cross-reference).

Accordingly, this example illustrates that—even outside of ASC 606—entities apply similar measurement principles when determining the fair value of noncash consideration. Transparent disclosure of valuation techniques and inputs is especially important when significant judgment is involved.

Noncash Consideration with a Variable Fair Value

Noncash consideration with a variable fair value may be considered variable consideration. If so, the entity would be required to follow the guidance of ASC 606-10-32-5 through 32-14 to estimate the amount of consideration it will receive.

If the noncash consideration is variable only because of changes in its fair value due to its form (for example, a fixed number of shares or stock options whose market price fluctuates), it is not considered variable consideration. In that case, the transaction price is measured at the fair value of the noncash consideration at contract inception, and subsequent changes in market price are ignored for revenue recognition purposes.

In contrast, noncash consideration qualifies as variable consideration if the variability arises from factors other than its form. For example, if the number of shares or options to be received varies based on a performance target or other specified condition, that variability is treated as variable consideration under ASC 606-10-32-23.

Here is a table that helps differentiate between a variable consideration and one that is not.

Scenario	Variable Consideration	Guidance
Payment is a fixed number of shares/options; only the market price fluctuates	NO	Measure at fair value at contract inception; ignore price changes
The number of shares/options varies based on performance or another condition	YES	Apply variable consideration/constraint guidance under ASC 606-10-32-23

If noncash consideration includes variability for multiple reasons, the variable consideration guidance applies only to the portion of variability that arises from factors other than the form of the consideration. To learn more, read Variable Consideration and the Constraint.

Example A: Noncash Consideration—Variable Due To Form

Consider a case where Entity A enters a contract with Entity B to perform consulting services that would normally be valued at $51,000. Entity A determines that the service is a single performance obligation. Instead of receiving cash from Entity B, Entity A agrees to be paid in 1,000 shares of common stock of Entity B. During the year, the following events occurred:

Both accept the contract on Jan. 1, 2027, when shares are valued at $50 a share.
On Feb. 1, 2027, Entity A completes the services, when shares are valued at $52 a share.
Entity B gives Entity A the shares on Mar. 1, 2027, when the shares are valued at $46 a share.

Issue: On what day is the noncash consideration measured? Is the noncash consideration remeasured on any later dates?

Analysis: Entity A measures the noncash consideration (shares of Entity B) at its fair value on the contract inception date of Jan. 1, 2027. The fair value of the 1,000 shares on this date is $50,000. Entity A recognizes $50,000 of revenue when (or as) it satisfies the performance obligation.

The fair value of the common stock varies only due to its form and not due to Entity A’s performance; therefore, the consideration does not qualify as variable consideration. Accordingly, changes in the stock’s fair value are not included in the transaction price. The noncash consideration is measured at fair value on the contract inception date for purposes of determining the transaction price and is not subsequently remeasured for revenue recognition under ASC 606. Once the entity’s right to the shares or stock options becomes unconditional, the related asset (typically a receivable) is accounted for under other applicable GAAP, such as ASC 321.

Example B: Noncash Consideration—Variable Due To Form and Reasons Other Than Form

During the year, the following events occurred:

Both accept the contract on Jan. 1, 2027, when the stock options are valued at $50 a share.
If Entity A completes its work by Apr. 1, 2027, it will receive 1020 stock options. However, if Entity A finishes its work before Mar. 1, 2027, it will receive an additional 100 stock options (1120 stock options total).
On Jan. 1, 2027, Entity A determines that there is a 20% chance it will complete its work before Mar. 1, 2027. However, on Feb. 1, 2027, Entity A determines that there is a 95% chance it will complete its work before Mar. 1, 2027. [Entity A uses the most likely amount method for variable consideration in similar situations.]
On Feb. 15, 2027, Entity A completes the services, and stock options are valued at $52 each. Entity B gives Entity A the stock options on Mar. 1, 2027, when the stock options are valued at $46 each.

Issue: On what day is the noncash consideration measured? Is the noncash consideration remeasured on any later dates?

Analysis: In this example, the fair value of the noncash consideration could change as a result of 1) the form of the stock options and 2) reasons other than its form. Stock options naturally fluctuate in value due to their form, and the fair value of the consideration also varies based on the day Entity A completes its work. The guidance on variable consideration (ASC 606-10-32-5 through 32-14) should only be applied to the variability resulting from reasons other than the form of the consideration (ASC 606-10-32-23). Thus, any changes in the fair value of individual stock options should not affect the transaction price. Only the variability based on the day Entity A completes its work will affect the transaction price. While price fluctuations are ignored for revenue recognition, the entity should evaluate the related contract asset for impairment in accordance with ASC 326 on credit losses (see ASC 606-10-45-3).

The results are as follows:

Entity A measures the noncash consideration (stock options of Entity B) at its fair value on the contract inception date of Jan. 1, 2027.
Entity A determines that at contract inception date, the transaction price is $51,000 ($50 x 1020) since it is most likely that it will complete its work by Apr. 1, 2027, but after Mar. 1, 2027.
On Feb. 1, 2027, Entity A determines that there is a 95% chance it will complete its work before Mar. 1, 2027.
On Feb. 1, 2027, Entity A updates its estimate of variable consideration and determines the transaction price to be $56,000 ($50 × 1120) using the fair value of the stock options at contract inception. Because this represents a change in estimate, Entity A recognizes a cumulative catch-up adjustment of $5,000 ($56,000 - $51,000) in revenue and continues to ignore changes in the market price of the stock options.

Share-Based Noncash Consideration—Scope Clarification (ASU 2025-07)

Accounting Standards Update 2025-07 added paragraph 606-10-15-3A to clarify the scope of ASC 606 for share-based noncash consideration received from a customer. Under this amendment, an entity applies ASC 606—including the guidance in paragraphs 606-10-32-21 through 32-24—to contracts in which a customer transfers shares, share options, warrants, or other equity instruments in exchange for goods or services.

The amendment clarifies that other GAAP, including ASC 815 and ASC 321, do not apply to share-based noncash consideration unless and until the entity’s right to receive or retain that consideration becomes unconditional. A right is considered unconditional when only the passage of time is required before payment is due, consistent with ASC 606-10-45-4.

If an entity has transferred some distinct goods or services in the contract but must still satisfy other performance obligations to be unconditionally entitled to share-based consideration, the arrangement remains within the scope of ASC 606, and a contract asset is recognized as a contract asset. Once the right becomes unconditional, the contract asset is derecognized, and a receivable is recognized for the equity instruments. The measurement of this receivable, indexed to financial instruments, is guided by ASC 321 or ASC 815, as applicable.

Accordingly, share-based noncash consideration remains within the scope of ASC 606 while the entity is still performing under the contract or meeting performance-based conditions. During this period, changes in the fair value of the shares, warrants, or options do not affect the transaction price, which is measured at contract inception in accordance with ASC 606-10-32-21 through 32-24. Similarly, the measurement of any contract assets based on the original transaction price measure is within the scope of ASC 606, but subject to credit loss assessments according to subtopic 326-20.

The following diagram summarizes when share-based noncash consideration transitions from ASC 606 to other applicable GAAP.

Noncash Consideration — illustration

Example C: Share-Based Performance Bonus (Based on ASC 606-10-55-250A)

On January 1, 20X7, an entity enters into a contract to sell 5,000 units of Product A at $100 per unit. If the entity delivers all 5,000 units within two years, the customer will also grant 100 stock warrants. The estimated fair value of the warrants at contract inception is $100,000.

Each unit represents a separate performance obligation satisfied at a point in time. Based on experience, the entity expects it will deliver all 5,000 units within the required time period and concludes the bonus is not constrained.

Step 1: Determine the Transaction Price

Cash consideration: 5,000 units × $100 = $500,000

Estimated fair value of warrants (at contract inception): $100,000

Total transaction price: $500,000 + $100,000 = $600,000

Transaction price per unit: $600,000 / 5,000 = $120 per unit

Even though the warrants may fluctuate in market value, their fair value is measured at contract inception for purposes of determining the transaction price under ASC 606.

Year 1 (20X7)	Year 2 (20X8)
The entity delivers 3,000 units.	The entity delivers the remaining 2,000 units.
Revenue recognized: 3,000 × $120 = $360,000	Revenue recognized: 2,000 × $120 = $240,000
Cash received: 3,000 × $100 = $300,000	Cash received: 2,000 × $100 = $200,000
Contract asset recorded: $60,000 (portion of warrant value earned)	Additional contract asset recorded: $40,000 (bringing the total contract asset to $100,000)
The entity does not adjust revenue for changes in the fair value of the warrants. However, the entity evaluates the contract asset for expected credit losses in accordance with ASC 326 (see ASC 606-10-45-3).	After all 5,000 units are delivered, the entity’s right to the 100 warrants becomes unconditional (only the passage of time remains before issuance). At that point: The contract asset is derecognized. The warrants are accounted for under other applicable GAAP, such as ASC 321 or ASC 815.

Key Takeaways

Share-based noncash consideration is included in the transaction price at fair value at contract inception.
Changes in market value do not affect revenue while the entity is still earning the consideration.
The arrangement remains under ASC 606 until the right to the warrants becomes unconditional.
Once unconditional, the accounting shifts to financial instrument guidance.

Customer Contributions as Noncash Consideration

Oftentimes, a customer contributes goods or services to help complete a contract. In such cases, the entity determines whether it retains control of those goods or services after the contract is completed. If the entity retains control, those goods or services are accounted for as noncash consideration. For example, assume that a customer contributes specific supplies to a manufacturer to complete a contract. If the manufacturer uses the supplies to complete the customer’s order and receives no additional benefit, those supplies are not considered noncash consideration. However, if the manufacturer retains excess supplies after satisfying its contractual obligations and subsequently uses those supplies to fulfill other contracts, the remaining supplies would be treated as noncash consideration (ASC 606-10-32-24).

Conclusion

Under the five-step revenue recognition model in ASC 606, entities should exercise judgment when determining the transaction price for contracts involving noncash consideration. Noncash consideration is measured on the date of contract inception at its fair value. If fair value is not determinable, the standalone selling price of the goods or services should be used. Entities should follow the guidance for variable consideration if the amount of noncash consideration will vary due to reasons other than its form. Customer contributions towards the completion of the contract may also represent noncash consideration under certain circumstances. Importantly, changes in fair value resulting solely from the form of noncash consideration do not affect revenue under ASC 606.

Editor’s Note

Effective for annual reporting periods beginning after December 15, 2026, ASU 2025-07 clarifies that share-based noncash consideration from a customer remains within the scope of ASC 606 until the entity’s right to receive or retain that consideration becomes unconditional. This amendment clarifies the interaction between ASC 606 and other Topics, such as ASC 815 and ASC 321, but does not change the fundamental measurement principles for determining the transaction price discussed above.

Resources Consulted

ASC 606-10-15-3A; 606-10-32-21 through 32-24; 606-10-55-248 through 55-250D
ASU 2016-12: “Revenue from Contracts with Customers.” BC 36-BC43.
EY, “Revenue from Contracts with Customers (ASC 606).” August 2025. Section 5.6
Deloitte, “A Roadmap to Applying the New Revenue Recognition Standard.” November 2025. Section 6.4.
Derivatives and Hedging (Topic 815) and Revenue from Contracts with Customers (Topic 606): Derivatives Scope Refinements and Scope Clarification for Share-Based Noncash Consideration from a Customer in a Revenue Contract: ASU 2025-07