Option for discounted software

Option for discounted software – A customer receives a discount for purchasing a bundle of goods or services if the sum of the stand-alone selling prices of those promised goods or services in the contract exceeds the promised consideration in a contract. Except when an entity has observable evidence in accordance with IFRS 15 82 that the entire discount relates to only one or more, but not all, performance obligations in a contract, the entity shall allocate a discount proportionately to all performance obligations in the contract. The proportionate allocation of the discount in those circumstances is a consequence of the entity allocating the transaction price to each performance obligation on the basis of the relative stand-alone selling prices of the underlying distinct goods or services. (IFRS 15 81) Option for discounted software

Example: Allocation of an option for additional software at a discount

Software vendor XYZ enters into a contract to licence software products A and B to a customer for a total of CU20,000. Software vendor XYZ agrees to provide a discount of CU3,000 if the customer licences products C, D or E within a year of entering the arrangement. The estimated selling price of both products A and B is CU10,000. The estimated selling prices of products C, D and E are CU10,000, CU20,000 and CU40,000, respectively. The Software vendor XYZ determines that the future discount provides a material right to the customer because it rarely discounts products C, D or E and it considers the discount percentage to be significant. Option for discounted software


Software vendor XYZ would allocate the transaction price to the individual performance obligations in the contract, including the option, in proportion to the stand-alone selling prices of goods underlying each performance obligation.

Assume Software vendor XYZ concludes that the stand-alone selling price for the option to purchase future products at a discount is CU1,500 based on the potential value of the discount and the likelihood the customer will take advantage of the discount.

As a result, the relative selling price allocation would be, as follows:

Performance obligation

Estimated stand-alone selling price


Allocated transaction price


Software A



= 10,000 * 20,000 /

(10,000 + 10,000 + 1,500)

Software B



Option to purchase future products at a discount




The amount allocated to the discount would be recognised in revenue when the performance obligation is satisfied (i.e., when the customer purchases products C, D or E or when the option period expires). Option for discounted software

Option to purchase services provides a material right

On January 1, 20X6, Software Co. enters into a perpetual licensing arrangement to deliver a software license and provide post-contract services for a one-year period for an upfront, nonrefundable fee of $1 million. The license and PCS are distinct and accounted for as separate performance obligations. Option for discounted software

As part of this arrangement, Software Co. also provided the customer with an option to purchase professional services at a 30% discount off the standalone selling price of these services if the customer exercises the option in the next 30 days. The discount on professional services offered as part of a promotional campaign during the same period to a similar class of customers is 10%.

Does the option to purchase professional services provide a material right to the customer? Option for discounted software

Yes. Because similar customers will receive a 10% discount on purchases during the next 30 days, the 30% discount provides the customer with a material right (the incremental 20% discount). The incremental discount is a performance obligation in the current contract (the perpetual licensing arrangement). Option for discounted software

Software Co. allocates revenue to the right and recognizes it when the customer purchases the professional services or when the right expires.

Option for discounted software

Option for discounted software


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