ChartAcc

Hint

(continued...)

from last post, you would have got the funda of Loyalty Points.
Now comes the recognition and measurement part.

Let's do it with following example:

In 2011, A customer buys goods worth Rs. 10,000.
Entity offers 1 Special Value Point per Rupee.
5 Points carry a value of Re. 1.
Points can be redeemed by discount in next purchase within 3 years.
It is estimated that 80% points are generally redeemed within 3 years.

Now Fair Value of Deferred Revenue is to be determined.

Let's decode the example as per IFRIC 13:

Total Value is Rs. 10000
Loyalty Points earned are 10,000
Value of Loyalty points is 10,000/5 = Rs. 2,000
Only 80% points are redeemed so obligation arises is Rs. 2,000 x 80% = Rs. 1,600

Accounting entries go as follows:

Year End 2011 - Initial Sale

Dr. Cash/Bank - Rs. 10,000
Cr. Deferred Revenue - Rs.  1,600
Cr. Revenue - Rs. 8,400


Year End 2012

Suppose 2000 points were redeemed during the year.
The value is 2000 / 5 = Rs. 400


Dr. Deferred Revenue - Rs. 400
Cr. Revenue - Rs. 400

Year End 2013

Suppose further 3000 points were redeemed during the year.
Moreover management expects redemption of 70% instead of 80% as earlier estimated.

Here a revisit to Deferred revenue is to be considered as follows:

Initial Obligation to be created as per revised estimate = 10,000 points x 70% = 7,000 points

Total points redeemed till Year End 2013 = 2,000 + 3,000 = 5,000

Revenue to be recognised till Year End 2013 = Rs. 1,600 x 5,000 / 7,000 = Rs. 1,143
Already recognised = Rs. 400
Balance to be recognised = Rs. 743

Dr. Deferred Revenue - Rs. 743
Cr. Revenue - Rs. 743


Year End 2013

Balance of 2,000 points, whether redeemed or not, are to be recognised as revenue:

Value to be recognised = Rs. (1,600 - 400 - 743) = Rs. 457

Dr. Deferred Revenue - Rs. 457
Cr. Revenue - Rs. 457