Airline reward $ points recognition

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Eva
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Joined: 13 Sep 2022, 03:55

Airline reward $ points recognition

Post by Eva »

Our business have earned airline points worth about $15,000. The points can be redeemed to book flights, they don't expire.
We haven't recognized the $15k in the accounts and when booking flights using the points the cost if not reflected in the P&L as they are "free".
I wonder if this is the right approach and concluded the most likely it is not. Should we recognize the $15k as an asset with corresponding credit in the P&L (other income) or should the income be recognized only to the extent of the cost of the flights booked using the airline points (ie no asset should be recognized just an income and corresponding expenses in the P&L)
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Marek Muc
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Re: Airline reward $ points recognition

Post by Marek Muc »

To me it's in substance a prepayment for services. When, for example, you pay $100 for a ticket an this includes $1 of points to be used for future flights, the entries would look as follows:

CR cash $100
DR expense $99
DR prepayments $1

Then, when you book a flight that costs say $50 and use this loyalty point earned earlier, you book:

CR cash $49
CR prepayments $1
DR expense $50
Eva
Posts: 4
Joined: 13 Sep 2022, 03:55

Re: Airline reward $ points recognition

Post by Eva »

Thank you Marek. The points are being earned for credit card transactions (we earn $1 for every $75 spent) so it’s hard to allocate them to any particular expenses. Would the correct entry to recognise the $15k now be:
DR prepayment/debtors
CR other income

Going forward we would reduce prepayment and recognise travel expense when the points are redeemed to book flights or increase prepayment and recognise other income when we earn additional points.
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Marek Muc
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Re: Airline reward $ points recognition

Post by Marek Muc »

you can book the adjustment in current year P&L as long as $15,000 is immaterial, but I would credit travel expenses as they were previously overstated:

https://ifrscommunity.com/knowledge-bas ... ial-errors
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