Revenue – ifrs 15 handbook

Quantitative and qualitative indicators are considered when 
assessing up-front fees
An entity considers both quantitative and qualitative factors when assessing 
whether a non-refundable up-front fee results in a contract that includes a 
customer option that is a material right, because it would probably impact the 
customer’s decision on whether to exercise the option to continue buying the 
entity’s product or service. This is consistent with the notion that an entity 
considers valid expectations of the customer when identifying promised goods 
or services. Therefore, a customer’s perspective on what constitutes a ‘material 
right’ includes consideration of qualitative factors as well as quantitative factors.
The following factors may be helpful in the assessment:
– the renewal price compared with the price in the initial contract with the up-
front fee;
– the availability and pricing of service alternatives; and
– the history of renewals. 
Some factors that could influence a customer’s decision to renew the 
contract may not be determinative on their own – e.g. the quality of service or 
convenience of not changing providers.
An entity needs to consider all quantitative and qualitative factors and exercise 
judgement in determining whether a non-refundable up-front fee results in a 
contract that includes a customer option that is a material right.
Determining whether a non-refundable up-front fee relates to the 
transfer of a promised good or service 
In many cases, even though a non-refundable up-front fee relates to an activity 
that the entity is required to undertake at or near contract inception to fulfil 
the contract, that activity does not result in the transfer of a promised good or 
service to the customer. 
When assessing whether the up-front fee relates to the transfer of a promised 
good or service, an entity considers all relevant facts and circumstances, 
including whether:
– a good or service is transferred to the customer in exchange for the up-front 
fee and the customer is able to realise a benefit from the good or service 
received. If no good or service is received by the customer or if the good or 
service is of little or no value to the customer without obtaining other goods 
or services from the entity, then the up-front fee is likely to represent an 
advance payment for future goods or services; and 
– if the entity does not separately price and sell the initiation right or activities 
covered by the up-front payment, then the payment may not relate to the 
transfer of a promised good or service.

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292 | Revenue – IFRS 15 handbook