Retail and consumer products entities should also keep in mind that, when they adopt the new credit impairment standard,2they will need to estimate full lifetime expected credit losses for their accounts receivable and contract assets. As a reminder, they will need to do this after assessing collectibility under the revenue guidance to determine whether they have a contract with a customer. Refer to our FRD publication, Credit impairment for short-term receivables under ASC 326, for more information. Customer options for additional goods and services Retail and consumer products entities frequently give customers the option to acquire additional goods or services. These additional goods and services may be priced at a discount or may even be offered free of charge. Options to acquire additional goods or services at a discount can come in many forms, including sales incentives (e.g., discount vouchers or gift cards issued in conjunction with a current purchase that may be used to purchase goods or services at the entity’s store or website in the future), volume-tiered pricing structures, customer award credits (e.g., loyalty or reward programs) or contract renewal options (e.g., waiver of certain fees, reduced future rates). Under the standard, an option to acquire additional goods or services is a separate performance obligation in a contract with a customer only if it provides a material right to the customer that the customer would not receive without entering into the contract (e.g., a discount that exceeds the range of discounts typically given for those goods or services to that class of customer in that geographical area or market). The Board indicated in the Background Information and Basis for Conclusions of Accounting Standards Update (ASU) 2014-093that the purpose of this guidance is to identify and account for options that customers are paying for (often implicitly) as part of the initial transaction. If the option provides a material right to the customer, the entity is required to allocate a portion of the transaction price to the material right at contract inception. The revenue allocated to the material right is recognized when (or as) the option is exercised (and the underlying future goods or services are transferred) or when the option expires. In contrast, if a customer option is not deemed to be a material right and is instead a marketing offer, there is no accounting for the option and no accounting for the underlying goods or services until those subsequent purchases occur. The FASB did not provide any bright lines about what constitutes a “material” right. However, the guidance states that an option to purchase additional goods or services at their standalone selling prices does not provide a material right and is instead a marketing offer.
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