Customer options for additional goods or services

Learning objectives

• Determine whether an option to acquire additional goods or services provides a material right (a discount greater than that typically given to that class of customer) that constitutes a performance obligation.L2, L3
• Estimate the stand-alone selling price of the option (discount obtained, adjusted for any discount available without the option and for the likelihood of exercise) and allocate the transaction price.L3, L4

Normative references

• IFRS 15Options to acquire additional goods or services for free or at a discount come in many forms: sales incentives, customer award credits (points), contract renewal options, other discounts on future purchases.
• IFRS 15 §B40An option gives rise to a performance obligation only if it provides the customer with a material right that it would not receive without entering into the contract (for example, a discount that is incremental to the range of discounts typically given for those goods or services to that class of customer in that market). The customer then in effect pays in advance for future goods or services, and revenue is recognised when those goods or services are transferred or when the option expires.
• IFRS 15 §B41An option to acquire an additional good or service at a price that would reflect the stand-alone selling price does not provide a material right, even if it can be exercised only by entering into a previous contract: it is a marketing offer, accounted for only when the customer exercises the option.
• IFRS 15The transaction price is allocated to the performance obligations, including the option, on a relative stand-alone selling price basis. If the stand-alone selling price of the option is not observable, the entity estimates it on the basis of the discount the customer would obtain when exercising it, adjusted for any discount available without exercising the option and for the likelihood of exercise.
• IFRS 15 §B43When the material right relates to future goods or services that are similar to the original goods and are provided in accordance with the terms of the original contract, the entity may, instead of estimating the stand-alone selling price of the option, allocate the transaction price by reference to the goods or services it expects to provide and the corresponding expected consideration; this is typically the case for renewals.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

14 questions

• Any option allowing the customer to acquire additional goods at a discount is a performance obligation, whatever the level of that discount.L2
• When an option provides a material right, the customer in effect pays in advance for future goods or services; the related revenue is recognised when those goods or services are transferred or when the option expires.L2
• When the stand-alone selling price of an option providing a material right is not directly observable, the entity estimates it from the discount the customer would obtain when exercising the option, adjusted for the discount it could obtain without exercising it and for the likelihood of exercise.L3
• Pastelle sells annual subscriptions to its painting workshops. In which of the following cases does the subscription provide the customer with a material right?L2
• 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?L3
• Which of the following statements about options to acquire additional goods or services are correct?L3
• Lunetta, an optician, gives each buyer of glasses a voucher for {option_discount} off a future purchase, valid for six months. According to the case data: the average amount of a future purchase is {expected_purchase}; any customer can obtain a seasonal discount of {general_discount} without the voucher; Lunetta estimates the likelihood that the voucher will be used at {exercise_probability}. The voucher provides a material right and its stand-alone selling price is not observable. Estimate the stand-alone selling price of one voucher.L3
• In November 20X1, the furniture store Boisdoré hands {vouchers} coupons to buyers of sofas; each coupon gives {coupon_discount} off a next furniture purchase. According to the case data, the average next purchase is estimated at {average_next_purchase}, any customer receives a usual discount of {usual_discount} without a coupon and the likelihood that a coupon will be used is {redemption_likelihood}. The coupons provide a material right. Calculate the estimated stand-alone selling price of one coupon, then of all the coupons.L3
• Orbelle sells a robot vacuum cleaner at a price of {price}, which matches its stand-alone selling price of {product_ssp}. With each vacuum cleaner, it gives a voucher providing a material right on its accessories, whose stand-alone selling price has been estimated at {option_ssp}. Allocate the transaction price between the vacuum cleaner and the voucher, and state when the amount allocated to the voucher will be recognised as revenue.L4
• During a December 20X2 promotion, the retailer Sonalis sells {units} headsets at a unit price of {unit_price}, equal to their stand-alone selling price. Each buyer receives a purchase voucher which, according to the analysis given by the case, provides a material right; the stand-alone selling price of all the vouchers, which is not observable, is estimated at {vouchers_ssp} after taking into account the likelihood of use. Allocate the total transaction price between the headsets and the vouchers.L4
• Brasaro sells espresso machines and gives each buyer a card offering 10% off capsules for one year. The same 10% discount is granted to anyone who joins the brand's club free of charge, without buying a machine. How does Brasaro account for the card given with the machine?L3
• On its 20X1 sales, Velya allocated 9,600 to purchase vouchers providing a material right, valid until 30 June 20X2; this amount, paid by customers before the future goods are provided, is presented as a contract liability. The vouchers used gave rise to the recognition of the corresponding revenue when the items were delivered. On 30 June 20X2, all the remaining vouchers expire unused; 2,400 remains in the contract liability for them. How should this balance be treated?L3
• Mirabel's analyst estimated the stand-alone selling price of a 30% discount voucher by multiplying that rate by the average amount of future purchases, 600, giving 180. According to the case data, any customer obtains a discount of 5% without a voucher and the likelihood that the voucher will be used is 70%. The voucher provides a material right and its price is not observable. Which estimate complies with IFRS 15?L4
• Ébène et Fils sells a dining table for EUR 2,400. The contract gives the customer the option to buy, within 12 months, matching chairs at EUR 150 each. That price is the one at which Ébène et Fils sells those chairs to any customer, without conditions (case data: it reflects the stand-alone selling price of the chairs). The offer is, however, available only to buyers of the table. How should this option be treated?L3