Question:
When does an option granted with the sale of a good or service give rise to a separate performance
obligation in the contract?
Answer:
Under the proposed ASU, if an entity grants a customer the option to acquire additional goods or services,
that promise gives rise to a separate performance obligation in the contract only if the option provides a
material right to the customer that the customer would not receive without entering into the contract. If
the option provides a material right, the customer in effect pays the entity in advance for future goods or
services and the entity recognizes revenue when those future goods or services are transferred or when the
option expires
When does an option granted with the sale of a good or service give rise to a separate performance
obligation in the contract?
Answer:
Under the proposed ASU, if an entity grants a customer the option to acquire additional goods or services,
that promise gives rise to a separate performance obligation in the contract only if the option provides a
material right to the customer that the customer would not receive without entering into the contract. If
the option provides a material right, the customer in effect pays the entity in advance for future goods or
services and the entity recognizes revenue when those future goods or services are transferred or when the
option expires
