Paragraph BC391 of ASU 2014-09 explains that contracts could describe renewal options as either (1) renewal options, which are basically extensions of the current contract, or (2) early cancellations, which are the option for a customer to end a long contract earlier than planned. A customer option to renew could be considered an option for additional goods or services, which then opens the door for the entity to consider whether the option is a material right (i.e., a performance obligation).
ABC Company is eligible to apply the practical alternative since the optional purchase is for additional goods or services that are similar to the original goods or services in the contract. Specifically, the PCS subject to the renewal option is the same PCS included in the original contract.
ASC 606-10-55-343 through 55-352.