Revenue for Telecoms

Revenue for Telecoms – Issues In-Depth | 153
8.2 Measuring and accounting for material rights |
Observations
Options to purchase additional goods and services at their stand-alone
selling prices do not represent a material right
606-10-55-43
[IFRS 15.B41]
Generally, options to purchase goods or services at their stand-alone selling
prices do not represent a material right and are not accounted for as a
performance obligation at contract inception. This is an important distinction that
will impact the allocation of the transaction price.
Telecom entities need to estimate the stand-alone selling price of an option
that represents a material right
606-10-55-44 – 55-45
[IFRS 15.B42–B43]
Telecom entities typically do not sell ‘options’ that represent a material right
separately. Therefore, the stand-alone selling prices of these types of options may
not be readily observable and may need to be estimated. That estimate should
reflect the discount that the customer would obtain when exercising the option,
adjusted for any discount that the customer could receive without exercising the
option, and the likelihood that the option will be exercised.
If the material right is to acquire future goods or services that are similar
to the original goods or services in the contract and are provided based on
the terms of the original contract, then a telecom entity may use a practical
alternative to estimating the stand-alone selling price of the option. Under this
practical alternative, the telecom entity allocates the transaction price to the
optional goods or services with reference to the goods or services expected
to be provided and the expected consideration. A telecom entity needs to
evaluate its specific facts, and the potential impact of the likelihood that the
option will be exercised, to determine the proper accounting and apply the
approach consistently.
Estimate of the likelihood of exercise of an option is not revised
606-10-32-43
[IFRS 15.88]
When determining the stand-alone selling price of a customer option for
additional goods or services a telecom entity estimates the likelihood that the
customer will exercise the option. This initial estimate is not subsequently
revised because it is an input into the estimate of the stand-alone selling price
of the option. Under the new standard, a telecom entity does not reallocate
the transaction price to reflect changes in stand-alone selling prices after
contract inception.
The customer’s decision to exercise the option or allow the option to expire
affects the timing of recognition of the amount allocated to the option but it does
not result in reallocation of the transaction price.
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