IFRIC 13 Customer Loyalty Programmes

Accounting Treatment under the IFRIC 13 Customer 

Loyalty Programmes

IFRIC 13 sets out the Accounting rules to be applied by an entity that grants award points/credits to its customers.It must be applied to customer loyalty award credits or points issued as a part of the transaction.The consideration received needs to be allocated between two components of the transactions.

Example

Sigma Food Corner operate a loyalty programme for its customers that allows them to earn loyalty points with every purchase.

Conditions are 

• Points must be redeemed with the Food Corner

customer will earn $0.50 with every $100.00 purchases.(example if a customer buy a foods with a value of $500,he/she  earns points worth $25.00)

During the May  2017,The first month of introducing the royality programme,Sigma sold Foods worth of $50000.00.This amount has been recognised as sales related to May 2017 by Sigma.

1. What is the revenue we should recognize for May 2017?
2. If we assume all the customers who earned loality points in May 2017 redeemed their points in June 2017 what is the sales recognition for the month of June 2017?

Answers

1. Consideration Received = $50000.00

Loyalty Credits earned by customers = $50000.00/100*0.5 

                                                            = $250.00

There for amount of revenue should be recognized for May 2017 is $50000-$250 =$49750

And $250 should be differed as the customers would purchase Foods using these points in future.

      2. Journal Entry required for the redemption of Loyality points in June 2017.Accounting Entry is as follows;

Deferred Revenue          Dr    $250.00
   Sales Revenue                 Cr   $250.00