IFRS 15 Retail – the finest perfect examples

IFRS 15 Retail revenue – finest perfect examples

Retail is the process of selling consumer goods or services to customers through multiple channels of distribution to earn a profit. Retailers satisfy demand identified through a supply chain. The term “retailer” is typically applied where a service provider fills the small orders of many individuals, who are end-users, rather than large orders of a small number of wholesale, corporate or government clientele. (Source: Wikipedia)

So what is the IFRS 15 guidance for retail?

Here are the cases covering the most significant accounting topics for retail in IFRS 15.

Case – Customer incentives Buy three, get coupon for one free

Death By Chocolate Ltd, a high street chain, is offering a promotion whereby a customer who purchases three boxes of chocolates at €20 per box in a single transaction in a store receives an offer for one free box of chocolates if the customer fills out a request form and mails it to them before a set expiration date.

Death By Chocolate estimates, based on recent experience with similar promotions, that 80% of the customers will complete the mail in rebate required to receive the free box of chocolates.

How is a ‘buy three, get one free’ transaction accounted for and presented by Death By Chocolate?

The rules

IFRS 15.22 states: “At contract inception, an entity shall assess the goods or services promised in a contract with a customer and shall identify as a performance obligation each promise to transfer to the customer either:IFRS 15 Retail

  1. a good or service (or a bundle of goods or services) that is distinct; or
  2. a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer (see paragraph 23).”

IFRS 15.26 provides examples of distinct goods and services, including “granting options to purchase additional goods or services (when those options provide a customer with a material right, as described in paragraphs B39-B43)”.

IFRS 15.B40: “If , in a contract, an entity grants a customer the option to acquire additional goods or services, that option gives rise to a performance obligation in the contract only if the option provides a material right to the customer that it would not receive without entering into that contract (for example, a discount that is incremental to the range of discounts typically given for those goods or services to that class of customer in that geographical area or market).

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1 Best and Complete Read – Non-cash consideration

Non-cash consideration

Non-cash consideration received from a customer is measured at fair value.

If an entity cannot make a reasonable estimate of the fair value, then it refers to the estimated selling price of the promised goods or services (IFRS 15.66–67).

Estimates of the fair value of non-cash consideration may vary. Although this may be due to the occurrence or non-occurrence of a future event, it can also vary due to the form of the consideration – e.g. variations due to changes in the price per share if the non-cash consideration is an equity instrument (IFRS 15.68).

When the fair value of non-cash consideration varies for reasons other than the form of the consideration, those changes are Performancereflected in the transaction price and are subject to the guidance on constraining variable consideration (IFRS 15.69).

Non-cash consideration received from the customer to facilitate an entity’s fulfilment of the contract – e.g. materials or equipment – is accounted for if and when the entity obtains control of those contributed goods or services.

The standard does not provide specific guidance on the measurement date for non-cash consideration. It appears that an entity should apply judgement, based on the relevant facts and circumstances, to determine whether to measure non-cash consideration with reference to the date on which the contract is entered into, the date the non-cash consideration is received or the date the performance obligation is satisfied. Changes in the fair value of non-cash consideration after the measurement date are not included in the transaction price (IFRS 15.126, IE156–158, BC254A–BC254G).

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