In short
A material right is an option, such as a discount on future purchases or loyalty points, that a customer receives only because it entered into the contract. It is a separate performance obligation.
Key takeaways
- Part of the transaction price is allocated to the option, based on its estimated standalone selling price.
- That revenue is recognized when the option is exercised or expires.
- An option to buy at the normal standalone selling price isn't a material right.
Where it's tested
FAR: Revenue Recognition — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
Under ASC 606, revenue from a performance obligation should be recognized over time if which of the following is true?