CERTYNEX IFRS ACADEMY

Clarivia sells annual lift maintenance contracts. Each customer may renew its contract for two further years on the same terms, whereas the rates offered to new customers are rising significantly. According to the case data, the renewal option provides a material right. What possibility does IFRS 15 give Clarivia for allocating the price?

Allocate nothing to the option and recognise each renewal when it is exercised.

Immediately recognise the value of the option as revenue when the original contract is signed.

Allocate to the option the total discount it provides over the two years, ignoring the likelihood of renewal.

Allocate the price by reference to the expected maintenance services, renewals included, and the corresponding expected consideration.