Example of Material Right:

A freebie at the end of a contract is called a “material right” and is expected

under IFRS 15 or ASC 606.
The review at inception looks like this:
Contract: xxxxxxx
Selling Prices & Allocation
Certain attributes
Date
POs
Description
Customer Facing price
Extended SSP
Relativity
PO & Revenue
Discount Allowance
PIT/OTial Right:
A freebie at the end of a contract is called a “material right” and is expected
under IFRS 15 or ASC 606.
The review at inception looks like this:
Contract: xxxxxxx
Selling Prices & Allocation
Certain attributes
Date
POs
Description
Customer Facing price
Extended SSP
Relativity
PO & Revenue
Discount Allowance
PIT/OTial Right:
A freebie at the end of a contract is called a “material right” and is expected
under IFRS 15 or ASC 606.
The review at inception looks like this:
Contract: xxxxxxx
Selling Prices & Allocation
Certain attributes
Date
POs
Description
Customer Facing price
Extended SSP
Relativity
PO & Revenue
Discount Allowance
PIT/OT
IPE & Start Date
RR & End Date
8/31/2017
3003
Hardware
100
500
7
72.22%
1300/1800=72.22%
• The attribution may vary depending on the client and their customer contract and
terms & conditions – this is just an example.
o A client for example, might not wish to process Initial Performance Event for
material right performance obligation #3005 until 8/31/2018 and might engineer
contracts arranging this.
• The Over Time Performance Obligation may become devolved.
• The material right detail should be imported as part of the contract detail from
sales and marketing sources (not EPM & planning.)
• If the material right value is not known at inception, the issue is one of
“variable consideration” (VC). It should be estimated.
• If the material right is estimated as VC at inception, it should be trued up as
it comes to realization; revision should be accounted for as accounting estimation
corrections, not contract modifications, as with any other VC estimations.
• A balance will build up in Contract Assets or Discount Allowances in respect of
material right as invoices are matched to assets.
• The liability for #3005 will be recognized as revenue when the customer signs the
new deal or when the right expires.