Hi,
Hoping someone could help with an amortisation issue and also any technical reasons why under IFRS and US GAAP.
We pay our customers an upfront sign-on bonus (eg: $600), and if they remain our customer for at least 2 years they retain the full $600.
If the customer terminates their agreement with us before 2 years they are required to pay back a portion of the bonus, but it is as per a schedule:
1 – 12 months: pay back all the bonus
13 – 24 months: customer ‘earns’ $50 per month, and would pay back bonus as follows if they terminate early:
13: repay $550
14: repay: $500
15: repay $450
...
23: repay $50
24: no repayment.
We are accounting for the bonus as a reduction from revenue amortising over the 24 months.
Initial entry is on payment to the customer is:
DR Deferred Revenue $600
CR Cash $600
But, should we amortise the DR to revenue:
- straight-line over 24 months (ie: $25 per month over 24 months), or
- $0 for the first 12 months as the customer has not qualified to retain any of the bonus yet, and will start to ‘earn’ in year 2 so $50 per month for 12 months of year 2?
The bonus is not dependant on any thresholds that the customer spends with us, only that they continue to be a signed-up customer.
We account under IFRS but refer to US GAAP where appropriate so any reference to either would be a big help.
Thank you,
Hoping someone could help with an amortisation issue and also any technical reasons why under IFRS and US GAAP.
We pay our customers an upfront sign-on bonus (eg: $600), and if they remain our customer for at least 2 years they retain the full $600.
If the customer terminates their agreement with us before 2 years they are required to pay back a portion of the bonus, but it is as per a schedule:
1 – 12 months: pay back all the bonus
13 – 24 months: customer ‘earns’ $50 per month, and would pay back bonus as follows if they terminate early:
13: repay $550
14: repay: $500
15: repay $450
...
23: repay $50
24: no repayment.
We are accounting for the bonus as a reduction from revenue amortising over the 24 months.
Initial entry is on payment to the customer is:
DR Deferred Revenue $600
CR Cash $600
But, should we amortise the DR to revenue:
- straight-line over 24 months (ie: $25 per month over 24 months), or
- $0 for the first 12 months as the customer has not qualified to retain any of the bonus yet, and will start to ‘earn’ in year 2 so $50 per month for 12 months of year 2?
The bonus is not dependant on any thresholds that the customer spends with us, only that they continue to be a signed-up customer.
We account under IFRS but refer to US GAAP where appropriate so any reference to either would be a big help.
Thank you,
