Revenue – ifrs 15 handbook

Example 3 – Non-refundable up-front fees: Investment 
management services
Investment Management Company U enters into a one-year contract to provide 
investment management services to Investor X. 
In addition to a monthly fee of 1% of the managed assets, U charges a one-time 
subscription fee of 50. U determines that this is a set-up activity that does not 
transfer a service to X, but instead is an administrative task. U expects to earn a 
monthly fee of 10 from the contract. 
At the end of the year, X can renew the contract on a month-to-month basis, at a 
similar monthly rate. X will not be charged another fee on renewal. 
U considers both quantitative and qualitative factors when determining whether 
the up-front fee provides an incentive for X to renew the contract beyond the 
stated contract term:
– U compares the up-front fee of 50 with the total transaction price of 170 – i.e. 
the variable fee of 120 plus the up-front fee of 50. It concludes that the non-
refundable up-front fee is quantitatively material; and
– U considers the qualitative reasons why X might renew the contract. It notes 
that competitors charge similar management fees and subscription fees to 
investors for similar contracts.

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294 | Revenue – IFRS 15 handbook
These factors are also reflected in a strong history of renewals and an average 
customer life that is longer than one year. 
U concludes that the up-front fee results in a contract that includes a customer 
option that is a material right. Therefore, it allocates the up-front fee between 
the one-year investment management services and the material right to renew 
the contract. U recognises the consideration allocated to the material right 
over the renewal periods that give rise to the material right. This period may be 
shorter than the average customer life.