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

11.5 Allocation of Consideration to Material Rights

11.5 Allocation of Consideration to Material Rights

ASC 606-10
55-44 Paragraph 606-10-32-29 requires an entity to allocate the transaction price to performance obligations on a relative standalone selling price basis. If the standalone selling price for a customer’s option to acquire additional goods or services is not directly observable, an entity should estimate it. That estimate should reflect the discount that the customer would obtain when exercising the option, adjusted for both of the following:
  1. Any discount that the customer could receive without exercising the option
  2. The likelihood that the option will be exercised.
55-45 If a customer has a material right to acquire future goods or services and those goods or services are similar to the original goods or services in the contract and are provided in accordance with the terms of the original contract, then an entity may, as a practical alternative to estimating the standalone selling price of the option, allocate the transaction price to the optional goods or services by reference to the goods or services expected to be provided and the corresponding expected consideration. Typically, those types of options are for contract renewals.