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How do you treat customer loyalty programs under IFRS?

Our company is doing car wash & services. Our customers are given a free car wash after 03 paid car washes as a customer loyalty program. My question is whether we need to recognize cost / revenue with regard to this program? What are the IFRS requirements in this regard?

asked Jun 26, 2013 in IAS 18 - Revenue by anonymous

1 Answer

0 votes
Customer loyalty programs are covered by IFRIC 13 — Customer Loyalty Programs. As per IFRIC 13 you need to assumes that the customer implicitly pays for the free service you offer under the scheme. And therefore a portion of the revenue you generate from the customer for the first 03 washes need to be allocated / deferred on a rational basis. For instance, assume you generally charge 25$ for a car wash then the total revenue you should have recognized at the end of the third wash should be = 25x3/4x3 = 56.25$ although you receive 75$. The balance income 18.75$ is deferred and recognized only when the free wash is completed. A question may arise as to what happens if the customer does not appear for the free wash. There you may analyze your past data and compute the % of customer who do not obtain the free wash and recognize the deferred revenue after a predetermined period.
answered Jun 28, 2013 by Ronalds Level 1 Member (1,770 points)