UK Customer Loyalty Programmes

[Tman]

Using IFRIC Interpretation 13, how would I account for a sale to a customer who is part of a rewards program? Say for each $1 the customer spends, he earns 1 point. Once the customer accumulates 250 points (spends $250), they earn $5 in free merchandise.

For example, I have a $400 sale to a rewards customer. Would my journal entry be:

Cash 400
------------Sales Revenue 395
------------Deferred Revenue 5

Or:

Cash 400
----------Sales Revenue 392
----------Deferred Revenue 8
*Given that the value of each point is $0.02 ($5/250)

I'm leaning towards the second way, as it accounts for the value of each point, not just the amount until rewards are earned.

I apologize in advanced if this isn't in the right section. Any help would be welcome.

Let me know if you need a link to the IFRIC Interpretation 13.

 

[Fidget]

The second method is correct as it accounts for the fair value of the individual points.

 

[Tman]

That's what I thought, thanks.

 

[Fidget]

you're welcome. There's quite a good article about it here too:

New guidance on IFRIC 13: Accounting for customer loyalty programmes

Once you click on the link you need to download it - it's a small pdf. It gives some examples of how to treat different types of loyalty schemes under IFRIC13 that you might find useful.