Deloitte
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Chapter 11 — Customer Options for Additional Goods or Services (Material Rights)

11.11 Amortization Period of Material Rights

11.11 Amortization Period of Material Rights

In certain service contracts (e.g., month-to-month contracts), customers are required to pay a one-time “activation fee” upon initially signing up for the service. Often, the activities associated with the activation fee do not transfer a promised good or service to the customer. In these situations, the activation fee is attributed to the future services to be provided under the contract with the customer, as required under ASC 606-10-55-51, and generally would give rise to a material right if the customer can renew the service each month without incurring an additional activation fee (i.e., the renewal is offered at a significant discount). ASC 606-10-55-42 and ASC 606-10-55-51 provide the following limited guidance on how and over what period such a material right should be recognized:
55-42 . . . If the option provides a material right to the customer, 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.
55-51 . . . The revenue recognition period would extend beyond the initial contractual period if the entity grants the customer the option to renew the contract and that option provides the customer with a material right as described in paragraph 606-10-55-42.