Revenue – ifrs 15 handbook

Enforceable rights and obligations for an expired contract when 
the entity continues to provide services
In some cases, an entity may continue to deliver services to a customer under 
the terms of a contract after it has expired – e.g. when the terms of a new 
contract to replace the existing one are not finalised before the expiry date of 
the existing contract. If the entity has legally enforceable rights and obligations 
related to these services, then the services delivered are accounted for using 
the general guidance of the standard. Conversely, if the entity does not have 
legally enforceable rights and obligations for the services delivered after the 
contract expires, then it applies the guidance on accounting for consideration 
received before a contract exists – see 
Section 1.3
.
Making the assessment of whether enforceable rights and obligations exist will 
often be complex and may require an entity to seek legal advice to determine 
whether it has enforceable rights and obligations after the expiry date of 
the contract.
Free trial period offers
In some cases, an entity will offer customers the right to obtain its services 
for free for a period, during which time the customer can decide to contract 
for future services. For example, a customer can decide to obtain a 12-month 
subscription to a film streaming service after the end of a free trial period. 
Service providers may offer additional incentives – e.g. free or discounted 
services or a discounted price on the service – if the customer enters into a 
long-term contract. 
In these cases, no contract exists until the customer accepts the entity’s offer to 
provide services after the free trial period because the customer can opt out any 
time during the free trial period. No enforceable right to consideration exists for 
the entity until the customer contracts for post-free trial period services. Once 
the customer accepts the entity’s offer, the entity accounts for the remaining 
free trial period services (from the date a contract exists) and the post-free trial 
services as performance obligations of the contract.
Services provided during the free trial period, before the customer accepts 
the entity’s offer to provide services beyond the free trial period, are generally 
accounted for as sales incentives.
However, it may be reasonable to account for only the post-free trial period 
goods or services as performance obligations of the customer contract if either:
– the customer’s right to the remaining free trial period goods or services is not 
enforceable; or
– on a portfolio basis, accounting for only the post-free trial period goods 
or services as performance obligations would not differ materially from 
accounting for both the remaining free trial period goods or services and the 
post-free trial period goods or services as performance obligations of the 
contract with the customer.

---

© 2019 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.
10 | Revenue – IFRS 15 handbook