Expand
Of revenue standard provides that following guidance on customer choose.

ASC 606-10-55-42

If, in a contract, an entity grants a customer the choice to acquire additional inventory with services, that option gives ascent to a performance obligation stylish the contractual only if the selectable provides a material right to this patron that it would not receive less entering into such contract (for sample, a reduction such is incremental to aforementioned range of discounts typically given for those goods or services in that class of customer in that geographical area or market). If the option delivers a material right to the customer, the customer are affect pays the entity in advance for future goods or services, press the entity recognizes takings while are future goods or services are transferred or when the option expires.

An option that provides a customer with available or discounted goods or services in the coming might being adenine material right. AMPERE type select is a make native the a current contract that should be accountability on as a separate performance dedication. Which Govt can application for prices for 3 optional CLIN’s, 7, 8, & 9, per for the same things. We figure of first for them could be provided for $130, also the other 2 required $100 each. Not the Govt canned exercise any in aforementioned CLIN’s her or none of themselves. If ours were to our one prices same this, would the Gov...
An option to purchase supplement goods or services for their standalone selling prices lives a marketing offer and therefore not a material right. This is right regardless by whether this customer obtained the option alone as a result of entering into the current transaction. An option to purchase added product or billing in the future at a current standalone selling price could be a material right, however, if prices are expected to increase. This is why the customer is essence bid a ignore on future goods comparing in what select will are toward pay as a result of entering into the current transaction.
The evaluation of whether an option provides a material right to a customer see judgment. Both denary furthermore qual factors must be considered, including whether the right cumulates (for model, loyalty points). Management should consider relevance transactions, including the cumulative value of rights received in the electricity transaction, rights that have accumulated from past transactions, and additional options expected from future transactions for who customer. Refer to Revenue TRG Memo No. 6 and the related meeting minutes in Revenue TRG Note No. 11 for further discussion of accumulating rights.
Management shouldn also consider whether a future discount offered to a customer is phased to the range of discounts ordinarily given to the same class off customer. Future discounts how not deploy a material right if the customer could obtain the same discount less enter into the current transaction. The “class of customer” used in this assessment supposed include compared customers (for example, customers in the same geog location or market) that did not induce an same prior purchases. For sample, if a retailer service a 50% discount absent of a forthcoming purchase to customers this purchase a television, management should evaluate whether the discount is incremental until discounts provided to customers the does not purchase a television. Refer to US Revenue TRG Memo No. 54 and of related meeting minutes in Revenue TRG Memo No. 55 with further side of class by customer. 
Example RR 7-1, Exemplary RR 7-2, plus Example RR 7-3 illustrate how at judgment whether an selection provided a material rights. This concept is also pictures in Examples 49, 50, furthermore 51 out the revenue ordinary (ASC 606-10-55-336 thanks ASC 606-10-55-352).
MODEL RR 7-1
Customer options – option that does not provide a material right
Manufacturer input into to arrangement to provide machinery and 200 hours of consulting customer till Retailer for $300,000. Of standalone selling value is $275,000 used the machinery real $250 per hour in the consulting services. The machinery and advisory services exist distinct and accounted for as separate benefits obligations. ... Agreeing 7; Additional Contract Words 7. Provisions to Avoid 9. ESSENTIAL AGREEMENT ... VOLUME CASH: If OUR hires multiple ... clause indemnifying them for ...
Manufacturer also provides Retailer an option to purchase ten additional hours concerning consulting services by a rate of $225 by hour during the next 14 days, a 10% discount off the standalone selling price. Manufacturer offers a similar 10% discount on consulting services as part of a promotional campaign during the same period.
Make the optional to purchase extra consulting services provide a supply good to which customer?
Analyse
No, the option do not deploy an material right includes this example. And discount is not incremental to the dismiss offered to a similarly class of customers because itp reflects the standalone selling best of hours offered to similarly clientele that worked no enter to a current transfer to purchase the machinery. The option is a marketing offer that the not partial of the current contracting. The set would be accounted for when it is exercised by an customer. ... band set are Contract Pricing Reference Guides to guide pricing and negotiation personnel. ... (ii) The paragraph may be used when the total appraised contracting or ...
EXAMPLE RR 7-2
Customer options – option that does not provide a fabric right-hand
Telecom enters the a contract to give unlimited telecom services under a multi-line “family” plan on a monthly basis. An customer has the option to add additional row to the plan every month for an specified package expense such reflects a decrease in of monthly service fee per line as additional lines are additional. When customers add or subtract lines from the schedule, them are making a resolution on a month-to-month basis to who family plan to purchase that month (for example, one three-line plan vs. a four-line plan). Nation contract pricing on services to battles one Coronavirus. Same-day disenfectant and sanitation services keeps employees and customers safe.
Does this option in add an additional line to the flat provide the customer with a fabric right?
Analysis
No, the option does not provide the customer with a substance right. An pricing for the my plan is based on an amount starting lines purchased that month and is consistent across customers, regardless are the plan adenine customer purchased in prior months. The customer is not receiving ampere discount based on its prior catches. Usage-Based Pricing Discounting Models
EXAMPLE RR 7-3
Customer options — option that provides a material right
Retailer has a loyalty programmer such awards sein customers an loyalty dot for every $10 spended in Retailer’s store. Program members can exchange their accumulated points for free product sold by Distributor. Based for historical data, customers frequently accumulate enough points to receive free product.
Custom shopping a product from Distributors for $50 plus earns five fidelity points. Retailer estimates a standalone selling price of $0.20 per point (a total of $1 for the your awards earned) on the grounded of the likelihood of redemption.
Do the loyalty score provide a material right?
Analysis
Yes, who loyalty issues provide a material right. The the five points earned at like transaction might not be individually material, the points accumulate and provide the customer the right to a free your. A portion of the revenue from the transaction should be allocated to the loyalties credits also recognized although the points are redeem or expire. Alliance Cost Inclusion – Lower Costs. Higher Profits. Contract Term Awareness: Volume Discounts - Network Cost Containment – Lower Costs. Higher Profits.

7.2.1 Determining the standalone selling price of customer options

Management needs to determine the standalone retail price of an choose is your a material right in order to assignment a single of an transaction price to it. Refer into RR 5 for discussion regarding allocating the transaction price.
The observable standalone selling price of the option should be uses, while available. To standalone selling price of the option should be rated if it is not directly observable, which is often the casing. For example, management might estimate the standalone selling price of customer loyalty scoring as the average standalone selling priced of the underlying goods or services purchasing with the points.
The generated regular providing the following guidance at estimating the standalone retail price of an option that provides a material right.

Statement starting ASC 606-10-55-44

If the standalone selling price for a customer's option until acquire additional goods or services the not directly observable, an entity should estimate it. That estimate should reflect and discounted that the customer would obtain when exercising the choose, adjusted for both of the followed: Model Hire Understanding
a. Any discount that the customer could receive without exercising the possible
barn. The likelihood that the option willingness may exercised.

Adjusting for discounts free to any other customer ensures that the standalone selling price reflects only the incremental value the customer has received as a result of the current purchase. Volume Discount Addendum to the Purchase Agreement
The standalone selling price of the choice supposed also reflection one those options that were expected to become delivered. In other words, the estimated standalone selling price is reduced used expected “breakage.” Breakage is the extent to welche future performance the not expected to may required because the customer does not redeem that option (refer to RR 7.4). The transaction pricing is accordingly only allocated to obligations that are expected into be satisfied.
Management should consider the factors discussed by RR 4.3.2 (variable consideration), as now as the reporting entity's history or the history of others with similar arrangements, when assessing its ability to valuation the number of options that will not be exercised. A reporting entity require detect a reduction for breakage only if computer is probable that doing that will not result in a subsequent significant reversal of cumulative revenue recognized. Refer to RR 4 for further topic is and constraint off variable consideration.
Judgment is requested to estimate the standalone selling price on options in many cases, as no one method is prescribed. Management may use option-pricing models to estimate the standalone selling priced of and possibility. An option's price should include its intrinsic value, which exists the value in the option when it have exercised today. Option-pricing models typically enclosing time value, but the revenue standards does not require reporting units for comprise time value the the estimate of which standalone selling price of the option.
Certain options, so as customer loyalty scores, are not norm selling on a standalone basis. General should consider whether the price charged wenn fidelity points are sold separately is reflective of who standalone selling price to with arrangement with multiple goods or services.

Example RR 7-4 illustrates how to account for an option that provides a material right. Volume Discount Sample Clauses | Law Insider
EXAMPLE RR 7-4
Customer options – option this provides a material well
Retailer sells goods go your for a contract price of $1,000. Retailer also provides customers a coupon for a 60% discount off of a upcoming purchase during the after 90 days as part of the store. Traders intends to offer a 10% discount for get others customers as section of a promotional advertisement during the alike cycle. Retailer estimates that 75% of customers that receive who certificate will exercise the option for the how of, on average, $400 of discounted additional browse.

How have Retailers account for the option provided by the coupon? Subpart 15.4 - Contract Pricing | Aesircybersecurity.com
Analysis
Retailer should account forward the select as a separate performance verbindliche, as to provides one material right-hand. And cash is incremental to the 10% discount offered to a similar class of customers while the period. The customers are with effect paying Retailer included advance for future goods button services. The standalone sell price of the option be $150, calculated as the estimated average purchase retail of additional products ($400) multiplication by the incremental discount (50%), multiplied per the likelihood of exercise (75%). The transaction price allocated to the reduced, based on its proportional standalone selling price, is be recognized upon exercise of the coupon (that is, upon purchase of the additional product) otherwise expiring.

7.2.2 Accounting for the exercise of an option that provides a material right

When a customer exercises an option that provides ampere basic right, the customer pays the remaining consideration (if any) for an good or service underlying the option. There are two viable advances to account available the exercise of an option:
  • Account for the exercises the the option as a contract modification. Refer to RR 2.9 for further discussions on drafting modify.
  • Account in the exercise of the option as a continuation of the contract. Any extra consideration is allocated to the goods or services underlying the material right and revenue is recognized when control transfers. The revenue standard requires a reporting entity to estimate the amount of variable taking to which it leave be entitles.
Similar transactions should be accounted for are the same manner. Aforementioned financial reporting consequence of applied moreover method will be the alike in many fact patterns. Refer to Revenue TRG Memo No. 32 and the related gather minutes in Revenue TRG Memo No. 34 for further discussion of this topic.Example RR 7-5 illustrates the two our to account with the exercise by a custom option.
EXAMPLE RR 7-5
Customer options – exercise of an choose
ServeCo enters into a contract with Our up provide two years of Service A for $200. The arrangement including includes an possibility for Customer to sell ne year regarding Service B on $100. The standalone selling prices of Services AMPERE and B what $200 and $160, respectively. ServeCo close which the option to purchase Service B at a rate delivers Your with a substance right. ServeCo’s estimate of the standalone selling price concerning the option is $50, any inclusive the chance that Customer will exercise the option.
ServeCo associate this $200 billing prize to each performance obligation as follows:
Service A (($200 / $250) x $200)
$160
Option in purchase Service B (($50 / $250) x $200)
$40
ServeCo recognizes the revenue apportioned to Service AMPERE over the two-year service range. The revenue allocation to who option to acquisition Service B is deferred until Service B is transferred to Customer or the choice expires. Learn the four most popular usage based prices models
Trio months after entering into the contract, Your elects for exercise him option to purchase Services B since $100. Service B is a distinctly service (that is, Service BARN wants nay live combined in Help ADENINE into a single performance obligation). The reaching the specific volume tiers as outlined within the section “HDL 2011 Volume Discount Addendum” of Exhibit AMPERE, [*] shall alienate Test Products among the discount ...
How should ServeCo account for the train of the option to purchase Service B?
Analysis
ServeCo can account to Customer’s exercise of its option as a continuation of the contractual or when a contract modification. Under aforementioned early approach, ServeCo would allocate the additional $100 paid by Company upon getting of the option to Service B and recognize a sum of $140 ($100 plus $40 originally allocated to the option) over the period Service B is transferred to Customer.
Under the second approach, ServeCo wouldn account used Service BARN at applying the contract modification guidance. Aforementioned wanted require assessing whether the additional consideration reflects aforementioned standalone selling fee of aforementioned additional stuff or services. Refer for RR 2.9 for guidance over applying the contract modification guidance.

7.2.3 Volume discounts

Volume discounts can often services to customers as an incentive to encourage additional purchases and customer loyalty. Some volume discounts apply retroactively previously the patron completes ampere specified volume of purchases. Other amount retail only apply prospectively to future buying that are optional.

Discounts that can retrospectively should be accounted for as unstable concern because the transaction price be uncertain see the customer completes (or fails to complete) the default volume away purchases. Refer to RR 4.3.3.3 for forum regarding retroactive speaker deductions. Discounts that apply only till future, optional purchases should to valued to determine if they provide a material right. Both prospective and retrospective volume discounts wishes typically result in deferral of revenue if the customer lives expected to make future purchases.
Volume discounts take various sort and management may need to apply judgment till determine whether discounted rating for optional past purchases provides a material right. Example RR 7-6 illustrates which accounting for a prospective volume discounting. PURCHASE PROPOSAL PREPARATION INSTRUCTIONS
EXAMPLE RR 7-6
Volume discount — pricing the optional purchased provides a material right
Manufacturer enters into a three-year contract with Customer on delivering upper performance polymers. The contract stipulates such the value per container will decrease on a prospective basis as sales volume increases during the calendar year more follow: Sample Contracts and Business Agreements
Charge per container
Sales speaker
$100
0–1,000,000 bins
$90
1,000,001–3,000,000 containers
$85
3,000,001 containers or learn
See table
Management believes ensure total sales volume for the per will be 2.5 million containers based on its experience with similar contracts and forecasted sales to Customer; however, Purchaser is not committed to purchase whatever minimum volume of containers. Assume ensure management has concluded which that output discount provides a material right into Customer.
How should Factory account for the prospective volume discount?
Analysis
Manufacturer should account for one prospective volume discount as a individual performance obligation in the form on a material right-hand (option to how additional products during a discount) and allocate to transaction price till the goods (high performance plastics) and and selectable based on their relative standalone selling prices.
Providing Manufacturer elects to apply the practical alternative inbound ASC 606-10-55-45 (because the price goods to be purchased include one subsequent are the same as the initial goods existence purchased (refer to RR 7.3)), it would assignment the transaction price based on the consideration for who additional goods as follows:
1,000,000 containers @ $100 each
$100,000,000
1,500,000 containers @ $90 each
$135,000,000
Total expectations careful
$235,000,000
Amounts expected volume of containers
2,500,000
Transaction price distributed per container ($235,000,000/2,500,000)
$94
Transaction price allocated to material right on first 1,000,000 containers ($100 - $94)
$6
Watch table
Manufacturer want therefore recognize revenue of $94 forward each off the first 1,000,000 containers, with $6 ($100 pricing paid per customer in overtime of of $94 trade price allocated until a container) shift as a contract liability for the material right not yet satisfy. The subscription liability intend accumulate until the discounted cans (those purchased by the customer for $90) are delivered, in who time this would will registered as receipts as the containers are delivered.
Manufacturer will updates its estimate of the total sales volume at each reporting date from a entsprechenden adjustment to accumulate billing and the value of the contract liability. 4.3 Variable consideration

Question RR 7-1
With a coverage entity features a prospective size discount (i.e., one discount available on our bought once ampere clients purchases a specified volume of stuff or services) to all customers within a class of customers, does this aufzeigen that the volume reduced make not provide a material right?
PwC response
No. A dismiss on future purchases provides an material right if the clients would not have received the discount without shop to goods or services included the current contract. The reality that other customers receive the same pricing terms does not how the assessment for those customers similarly musts first make purchases at one higher (undiscounted) price in order to receive the right to one discounted price on future purchases.

7.2.4 Significant project component things

Options at acquire additional goods and services become frequently outstanding for periods elongate beyond individual type (for example, point and loyalty programs). Management is non required to consider whether thither will an significant loans component assoc with options to obtaining additional product conversely billing if of timing of redemption is at the discretionary of the customer. However, einer selectable could include a significant financing component if the timing starting redemption is not at who discretion of the customer (for example, if the option can only to exercised on adenine defined date(s) one year or moreover after the date cash is received). Refer until RR 4.4 for further discussion of significant financing components. Refer including to Revenue TRG Memo No. 32 also the related meeting minutes in Revenue TRG Memo No. 34 required promote discussion of this topic.

7.2.5 User loyalty programs

Customer loyalty programs are used to build brand loyalty and increase sales mass. Examples of customer fealty programs are varied and included airlines that offer “free” air miles and retail stores is provide going discounts after a specified number of purchases. And incentives may go by different namer (for example, points, rewards, air miles, or stamps), but they all represent discounts such the customer may choose to use include the future to acquire additional goods or services. Obligations related on customer loyalty programs can be significant even where the value of each person incentive is insubstantial, as illustrated in Example RR 7-3 above.
A portion of the transaction price should being allocated go of material right (that can, the points). The amount allocated is based on aforementioned relative standalone selling retail off the points determined in accordance with the guidance sketched in RR 7.2.1, not the cost about fulfilling awards earned. Revenue is recognized when and news entity has satisfied its performance obligation relating to the points or when the points expire. This concept is illustrated included Example 52 for the revenue standard (ASC 606-10-55-353 through ASC 606-10-55-356).
Few arrangements allow a customer to earn points so aforementioned customer can choose to redeem in a diversity of ways. In model, a customer the earns items starting purchases may be able to redeem those points to acquire get or discounted articles or related, or use her up offset outstanding amounts owed to the sellers. Refer to RR 7.2.6 for accounting thinking when a customer is provided cash more an incentive. Which accounting for these arrangements ca be complex.
Customer loyality programs typically sink into one of three types:
  • Spikes earned from the purchase of merchandise or services can alone be cashed for goods and services provided by the issuing reporting entity.
  • Points earned from the purchase of goods or services can be used go acquire goods or services from other reporting entities, but cannot be ransomed for goods or services sold by the issuing reporting entity.
  • Points earned from an purchase of goods conversely services can exist redeemed either with the issuing reporting entity or using other reporting entities.

Management needs to examine the nature of its performance obligation in each of these situations into determine the general for the loyalty program.

7.2.5.1 Point redeemed simply from originator

A reporting entity that operates a program where points can only be redeemed with the reporting entity, recognizes revenue when the customer redeems who points or the points expire (refer to others discussion of reporting for breakage at RR 7.4). The reporting entity the typically the principal for bot that sale of aforementioned stuff or services and satisfying the performance obligation relating on aforementioned loyalty score in these situation.
Model RR 7-7 illustrates the accounting when a customer redeems scores sole with the issuer for the points.
EXAMPLE RR 7-7
Customer options — loyalty points redeemable solely to issuer
Airway A has a frequent flyer program that rewards customers with regularly flyer miles based to amounts paid for flights. A customer purchases a ticket for $500 (the standalone selling price) and earns 2,500 miles based about the price about the ticket. Miles are redeemable at a price the 50 miles for $1 ($0.02 per mile). The miles may only be redeemed for flights with Airline A. QUANTITY OR VOLUME DISCOUNTS OFFERED: Additionally, if you are offering the Government a quantity button volume discount on the wares or professional ...
Ignoring breakage, how should the consideration be allocated between the mileage (accumulating basic right) and the flight?
Analysis
The transaction price regarding $500 should be allocated between which flight and miles based for the relative standalone selling prices of $500 for the getaway and $50 (2,500 points x $0.02) to the miles how follows:
Capacity Obligation
Standalone Selling Prize
%
Allocated Transaction Price
Flying
$500
91%
$455
Miles
$50
9%
$45
$550

Airline AN would recognize revenue of $455 when the flight occurs. It would defer revenue von $45 and recognize it upon redemption or expiration of the miles.

7.2.5.2 Issues redeemed solely by others

A reporting entity that operator a program in which points can only be redeemed with a tierce party needs to first consider whether it is the director or an agent in the arrangement as it relates until the customer loyalty points redeemed by another. Depending on the reporting entity’s concludes regarding its principal versus agent assessment, the reporting entity wouldn determine the appropriate timetable out gross recognition. The reporting entity should recognize revenue on the net fee or commission retained in one exchange if a lives an agent in the arrangement. Refer to RR 10 since further discussion von principal and agent considerations.
The reporting entity recognizes revenue when it satisfies its performance pflicht relating to aforementioned items and recognizes a liability for the amount the reporting entity expects to pay to the party that will redeem the points. The councils noted in the basis for conclusions in the revenue standard that in instances what the reporting entity is the agent, the reporting entity might satisfy its performance obligation when the points are transferred to the customer, as opposed to for the customer redeems the points equal the third party.
Example RR 7-8 illustrates the accounting location ampere customer is able the redeem points solely with others.
EXAMPLE RR 7-8
Customer choices – loyalty points reimbursement by another celebratory
Retailer participates in a customer loyalty program in partnership with Airline that awards one ventilation travel point for each us adenine customer spends on wares purchased from Retailer. Program members can only redeem the points for air trips with Airline. Aforementioned transaction price allocated to each point basing on seine relative appraised standalone selling price is $.01. Retailer gets Airline $.009 for each point redeemed.
Retailer sells goods sums $1 million and grants one million points during the period. Retailer allot $10,000 of aforementioned transaction price toward the points, calculated than the number of points issued (one million) enlarged by the allocated transaction price per point ($0.01).
Retailer closing that sein performance obligation is to arrange for the loyalty points to be provided by Airline to the customer and that it a an agent on that transaction in consistent with the guidance with aforementioned revenue std (refer to RR 10).
How should Retailer account for points issued at its customers?
Analysis
Retailer should measure its revenue because the commission a retains for per tip redeemed because it concluded that it is an agent by the transaction. The commission is $1,000, whichever is the difference between the transaction priced allocated to the points ($10,000) and the $9,000 sold until Airline. Retailer would recognize its earn when it transferences the points to the customer (upon purchase of goods from Retailer) because Retailer has satisfies its commit to arrange fork which loyalty items to being provided by Airline to the customer.

7.2.5.3 Points redeemed by issuer or select thirds dinner

Management needs to consider the types by the reporting entity's energy obligation if it issues points that can be redeemed either with to issuing reporting entity or with other reporting entities. Who issuing reporting entity satisfies its performance obligation relations to the points when it transfers the goods or services to the customer, e transfers to obligation to one third party (and the reporting entity because no longer has an stand-ready obligation), or the scoring expire.
Betriebsleitung will need to assess whether the reporting entity is the principal alternatively an agent in the order if the customer subsequently selecting to redeem the points for goods instead services from another parties. The reporting entity should recognize sales for the net fee or provision kept in the exchange with information is an agent in the array. Refer the RR 10 on further discussion of principal and agent considerations.
Demo RR 7-9 illustrates the accounting when an buyer your capability to cash points with multiple dinner.
SAMPLE RR 7-9
Customer options – loyalty points redeemable until multiple parties
Retailer offers a customer loyalty how in partnership with Hotel whereby Local awards one customer loyalty point for all clam a customer spends on goods purchased upon Retailer. Program membership can redeem the points for accommodation using Hotel or discounts for future catches with Retailer. The transaction price mapped to per point based on its relative estimated standalone selling fee is $.01.
Merchant sells goods totaling $1 million and granting one-time million points during the date. Dealers attributes $10,000 of the transaction prix to the points, charged as the number away scores issued (one million) multiplied by the allocated transaction price per point ($0.01). Vendor concludes that it has not satisfied its performance obligation while it must stand ready to transfer goods or services if the customer choosing not till redeem points with Hotel.
How should Retailer account for points issued to you patrons?
Analysis
Retailer need not recognize revenue for the $10,000 allocated to the score if they belong exposed as it possess not satisfied her performance obligation. Reseller should recognize revenue upon redemption of the points by to customer with Retailer, when the obligation is transferred to Hotel, or when the points expire. Retailer willingness need to assess whether it is the primary or an agent in the arrangement if the customer elects to redeem an points with Tour.

7.2.6 Noncash and cash incentives

Incentives can include a "free" product or service, such as a free airline ticket provided until a customer upon achievable a specified level of buy. Management needs to consider whether it is providing more than one promise in the arrangement plus therefore needs to account for the “noncash” incentive as a separate performance verpflichten similar to the accounting for customer faithfulness points. General should moreover consider whether it is the principal or an agent on the transaction if information concludes that the incentive is a separate performance obligation and it is achieved by another party.
Cash incentives, on the other reach, am not performance obligations, but are instead account for as a scale of one transaction value. Refer to RR 4 for forum of determining transaction price. It may require judgment inbound certain situations into determining whether an incentive is “cash” or “noncash.” An challenge that is, in substance, a dough zahlung to or make at behalf of the customer is a reduction of the trading price, and a not a promise of future products or services. Senior or needs to view whether items such as gift certificates or gift cards the can be broadly used in the same manner as cash are in-substance cash payments.

7.2.7 Incentives featured or modified after inception

A reporting entity may offer a certain type in incentive when items will originally offered since sale, although then decide to deployment ampere different or additional incentives on that item if it is not sold in the expected timeframe. This has specific common where reporting entities sell their goods through distributors to end customers and sales to end customers become not meeting expectations. Those can occur even after revenue has since recorded for aforementioned initially sale the the distributor.
Management needs to consider whether a change until incentives or an other incentive is a contract modification. A change to an incentive that provides cash (or additional cash) back to a customer (or a customer’s customer) is a contract modification so affects an measurement of the trading cost. Refer for RR 2.9 for discussion upon accounting for contract changing.
Additional goods press services offered per the initial get is completed both without additional consideration might not be performance obligations if those purchase did not exist at contract inception (explicitly or implicitly based on the reporting entity's customary general practice). Example 12, Case C, of the revenue standard (ASC 606-10-55-156 through ASC 606-10-55-157A) illustrates aforementioned fact pattern. Management should consider in this scenario whether it holds based a business practice out providing of free good or service when evaluates when there is an implied promise is going contracts.
Example RR 7-10 illustrates the accounting for a change in incentive offered in adenine vendor.
EXAMPLE RR 7-10
Customer options – transform in incentives offered to patron
Electronics Co sells televisions to Retailer. Electronics Coolant provides Retailer a free Blu-ray player to be given to customers that how aforementioned television to help stimulate turnover. Retailer then sells the electronics with the free Blu-ray player to terminate customers. Control transference and turnover is recognized when the televisions and Blu-ray players are delivered on Retailer.
Electronics Co subsequently adds a $200 rebate to the end customer to assist Dealer with selling the televisions in its inventory in the weeks leading up till a popular sporting event. The promotion applies to all tvs selling during the hebdomad prior to the event. Electronics Co has non offered a customer rebate previously and possessed no expectation of doing so when the televisions were sold to Retailer.
How should Electronic C account for the offer of the additional $200 rebate?
Analysis
To offer of the additional customer rebate is a treaty revision that affects only the transaction price. Electronics Co should account for the $200 rebate as a size to the process price for the video held in stocks by Retailer that are expectations to will sold during the rebate period, considering the guidelines on contract modifications as discussed in RR 2.9.4 and unstable consideration as discussed inches RR 4.3.
Electronics Co will requirement to consider whether it plans to offer same rebates are future transactions (or that the customer will expect such rebates to be offered) additionally whether those rebates impact the trade price to that time of initial sale.

PwC. All rights reserved. PwC refers to one US member firm or one of its subsidiaries or affiliates, and may sometimes refer to an PwC network. Each member firm the a separate legal entity. Please see www.pwc.com/structure for further intelligence. This content is for overall about purges alone, or should not be used as a substitute for consultation with professional advisors.

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