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Dear Sir
I am not clear about certain aspects of customer incentive and their accounting treatment as per IFRS 15 mainly concerning products or services purchased from third party to provide benefits to customers such as
i) Wholesale company provides free insurance coverage to their dealers if they purchase a specified amount of products during the financial year. How should this transaction be treated as a reduction of revenue or marketing expense? In addition, it may be mentioned here that insurance plan is purchased by the company from insurance company so that they can provide it to dealers.
II) Retail company provides free foreign tour to their customers if they purchase a specified amount of products during the financial year. How should this transaction be treated as a reduction of revenue or marketing expense? In addition, it may be mentioned here that foreign travel tour plan is purchased by the company from travel agency so that they can provide it to customers.
Thanks in advance. Appreciate your time and effort.
Warm regards
MymoonHi,
The key under IFRS 15 is that nothing is free, we have to find a value for it and include it in the price of the combined offering. So in the third step of our approach we will need to look at the total transaction price, and then in the fourth step allocate this to the separate performance obligations based on their standalone prices.
So using one of your examples above, you’d need to look at how much the foreign tour would be sold for if it were to be sold separately as a standalone package and use this to work out the revenue that should be allocated to it.
Thanks
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