IFRS 15 Revenue allocation - Loyalty program (super prize is a car)

[YuSKIm]

Hi collegues,
could you share your point of view on the following situaion:

Telecom company X starts new promotion. The main prize is a car.
Under the promo's conditions subscribers should make a balance's top-up of 10 USD and more. Each top-up is a chance to win a car for free. Subscibers can use their money on their balance as they want (buy a tariff plan or internet package). This promo leads increasing of company's revenue.
Telecom company X got a car for 4000 USD. Total revenue generated from this promo is 50 000 USD (internet, voice, sms)

The question is:
Should total revenue (50 000) be allocated between internet / voice / sms / CAR or except CAR?

[Marek Muc]

I would allocate some of the sale proceeds to the car, it doesn't differ much from customer loyalty programmes in my opinion:
https://ifrscommunity.com/knowledge-bas ... rogrammes/

and what's your view on this?

[YuSKIm]

Hi Marek Muc,
thanks for your reply

Our opinion is that total revenue should be allocated to car as well.
but, if we choose this way, we will face with difficulties of estimation the amount of revenue that comes only from this promo.

[Marek Muc]

I can imagine! I would go with some central rough estimate that would be booked on top of normal revenue recognition entries.

[YuSKIm]

Your idea is good if the company has only one promo at the exact period, but we also change the tariff lines simultaniously (making cheaper and giving more products)

anyway, thank you so much for your consultation
now I know in which way will be my next step

[Marek Muc]

I think you simply need to come to terms with the fact that your estimates won't be as accurate as you would like them to be in an ideal (accounting) world

[PrazFinPoint]

No revenue should be allocated to the Car given away to Customers.

The cost of the Car should instead be recorded as a deduction of Gross Revenue, as a Trade Terms or Deals, at $4,000, and thus recorded to Net Sales.

[Marek Muc]

You seem inclined to decrease revenue! A question as in previous post - which IFRS 15 paragraph are you applying here?

[Leo]

Hi YuSKIm, is that possible to share with us finally what you did in a simplified example ?

If my understanding is correct, the 50 000 USD of sales is the total amount realized from this promotion for a period of time. So, at inception, how did you allocate the prize and recognize the revenue each time you have a new contract ?

Thank you in advance !

[spideyocd]

I agree with marek that the car cost should be allocated but the question is how?

I don't agree that it is like customer loyalty or buy get get one free option because what you are entitled by the sale is fixed in the former but in a car prize case it isn't so we have to estimate the sales and for each person for whom the prize is eligible we have to allocate the cost of the prize

It can be done after the promo is over or predecided on a specific sales which they expect to attain over the promo period promo but then the accounting will get real complex because how will you handle if sales are lesser or greater than what you expect ?

How will you adjust revenue?

I don't think IFRS 15 covers the case where the material right is a chance to win

[Leo]

I can't find it either, in that case is it possible to consider it as a marketing expenses ?

[Leo]

In the absence of a Standard or an Interpretation that specifically applies to a transaction, other event or condition, management must use its judgement in developing and applying an accounting policy that results in information that is relevant and reliable. [IAS 8.10].

Is it fair to say that the management decided to recognise the car as a marketing expenses ?

I remember McDonald used to have this Monopoly promotions, with a peel-off token attached to every drinks. Sometime you can win a burger, or even a trip to Bermuda. Or sometime, nothing. Is it similar to this case ?

How McDonald recognised the costs of Monopoly promotions ?

[spideyocd]

The biggest question is whether giving a chance to win is equivalent to giving an option to receive additional goods or services at less than individual SSPs

Is a chance to win a prize a material right given to customers?

If yes then as @marek says it would be like loyalty or options for additional goods and services and account accordingly although then the all sales for promotional period would be allocated between the individual good SSP and cost of prize even though only one person wins it in reality

The contract liability is reversed when the prize is given

I hope this issue is cleared in a agenda decision

Although one BDO Australian article too Marek's view

https://www.bdo.com.au/en-au/insights/r ... incentives

[Leo]

Thanks Spideyocd for sharing this, that's very clear for me!

For you, where would you book the cost of the car or the trip to Italy ? (Marketing expenses, or COGS)

Thanks !

[Marek Muc]

thanks for the link spideyocd!