Revenue – ifrs 15 handbook

Evergreen contracts
For the purpose of assessing contract term, an evergreen contract (i.e. a 
contract that automatically renews) that is cancellable by either party each 
period (e.g. on a month-to-month basis) without penalty is no different from a 
similar contract structured to require the parties to actively elect to renew the 
contract each period (e.g. place a new order, sign a new contract). In these 
situations, an entity should not automatically assume a contract period that 
extends beyond the current period (e.g. the current month).
Only the customer has a right to terminate the contract
If only the customer has the right to terminate the contract without penalty 
and the entity is otherwise obliged to continue to perform until the end of a 
specified period, then the initial contract term ends on the earliest date on 
which the customer can terminate. The contract is evaluated to determine 
whether the customer option to continue the contract for the specified period 
gives the customer a material right (for discussion of customer options for 
additional goods or services, see 
Section 10.4
).
1.3 
Consideration received before a contract exists
IFRS 15.15–16
The following flowchart outlines when consideration received from a contract that is 
not yet in the scope of the standard can be recognised.
No
Yes
No
Yes
Has the contract been terminated and is the
consideration received non-refundable?
Recognise
consideration
received
as revenue
Are there no remaining performance
obligations and has all, or substantially all,
and
of the consideration been received
is it non-refundable?
Recognise consideration received as a liability
The entity is, however, required to reassess the arrangement and, if Step 1 of the 
model is subsequently met, begin applying the revenue model to the arrangement.

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18 | Revenue – IFRS 15 handbook