Revenue – ifrs 15 handbook

evaluation of both quantitative and qualitative factors
An entity considers whether a customer option for additional goods or 
services is a material right at contract inception based on both quantitative and 
qualitative factors. Although the evaluation is judgemental, an entity considers 
whether the option would be likely to impact the customer’s decision to buy the 
entity’s product or service in the future. This is consistent with the notion that an 
entity considers valid expectations of the customer when identifying promised 
goods or services (see 
Chapter 2
).

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10 Other application issues | 267
10.4 Customer options for additional goods or services
| 
Customers’ options that provide accumulating rights are 
assessed in aggregate
In many cases, the rights that an entity grants to its customers accumulate as 
the customer makes additional purchases. For example, in a customer loyalty 
programme the points granted in an initial transaction are typically used in 
conjunction with points granted in subsequent transactions. Further, the value 
of the points granted in a single transaction may be low, but the combined value 
of points granted over an accumulation of transactions may be much higher. 
In these cases, the accumulating nature of the right is an essential part of 
the arrangement.
When assessing whether these customer options represent a material right, an 
entity considers the cumulative value of the rights received in the transaction, 
the rights that have accumulated from past transactions and additional rights 
expected from future transactions.
An entity considers all relevant quantitative and qualitative factors.
Exercise of a material right
When a customer exercises a material right for additional goods or services, an 
entity may account for it using one of the following approaches. 
– 
Continuation of the original contract:
Under this approach, an entity treats 
the consideration allocated to the material right as an addition to the 
consideration for the goods or services under the contract option – i.e. as a 
change in the transaction price.
For example, Service Provider S enters into a contract with Customer M to 
provide Service D for two years for 100 and an option to purchase Service E 
for two years for 300, which is typically priced at 400. S determines that the 
option is a material right and therefore a separate performance obligation. 
Assume that S initially allocates the transaction price of 100 as follows: 75 
to D and 25 to the option to purchase E. Six months into the contract, M 
exercises the option to purchase E. 
On exercise of the option, S recognises revenue of 325 (25 + 300) for E 
over two years. There are no changes to the amount or timing of revenue 
recognition for D – i.e. 75 continues to be recognised over two years from 
contract inception. 
– 
Contract modification: 
Under this approach, an entity applies the contract 
modification guidance to evaluate whether the goods or services transferred 
on exercise of the option are distinct from the other goods or services in 
the contract. The outcome of this evaluation will determine whether the 
modification is accounted for prospectively or with a cumulative catch-
up adjustment. See 
Chapter 8
for further guidance on contract modifications.

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