Revenue – ifrs 15 handbook

Goods or services promised to a customer’s customer may be a 
performance obligation
IFRS 15.BC92
In some industries, a manufacturer may promise goods or services as sales 
incentives to the end customers of its customer to encourage the sale of its 
products through the distribution channel. The standard requires an entity to 
evaluate the promise to the customer’s customer to determine whether it is a 
performance obligation in the contract with the customer. 
Examples of these circumstances are a carmaker that offers free maintenance 
services to customers who purchase cars from dealerships, a software provider 
that implicitly offers customer support or updates to end users of its software 
and a consumer goods company that provides mail-in offers for free goods to 
end customers.
These promises may be made explicitly in the contract with the customer 
or implied by an entity’s customary business practices, published policies or 
specific statements. For more discussion on implied promises, see 
Section 2.2
.
Contractual restrictions may not be determinative
IFRS 15.BC100
Contracts between an entity and a customer often include contractual 
limitations or prohibitions. These may include prohibitions on reselling a 
good in the contract to a third party or restrictions on using certain readily 
available resources – e.g. the contract may require a customer to purchase 
complementary services from the entity in conjunction with its purchase of a 
good or licence.
IFRS 15.IE58E–IE58F
In Example 11D in the standard, the customer is contractually required to use 
the seller’s installation service to install the purchased good. The example notes 
that the contractual restriction does not affect the assessment of whether the 
installation services are considered distinct. Instead, the entity applies Criteria 1 
and 2 to assess whether the installation services are distinct. By applying these 
criteria, Example 11D illustrates that substantive contractual provisions alone do 
not lead to a conclusion that the goods and services are not distinct.
IFRS 15.BC100
A contractual restriction on the customer’s ability to resell a good – e.g. to 
protect an entity’s intellectual property (IP) – may prohibit an entity from 
concluding that the customer can benefit from a good or service, on the basis 
of the customer not being able to resell the good for more than scrap value 
in an available market. However, if the customer can benefit from the good 
(e.g. telephone support) together with other readily available resources (e.g. a 
software licence), even if the contract restricts the customer’s access to those 
resources (by requiring the customer to use the entity’s products or services), 
then the entity may conclude that the good or service has benefits to the 
customer and that the customer could purchase or not purchase the products or 
services without significantly affecting that good.

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2 Step 2 – Identify the performance obligations in the contract | 31
2.1 Distinct goods or services
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