IFRS 15 & Customer Loyalty Programs

When customers acquire goods from a retailer, they are sometimes awarded with points or vouchers that can be used to obtain other goods or services from that retailer, or to receive a discount on the future purchase of goods or services.

Under IFRS 15, a loyalty/reward program creates a performance obligation, when it provides a material right to the customer; hence the seller will need to allocate a portion of the transaction price to the loyalty program.

Revenue is apportioned in accordance with the relative stand-alone selling prices of the items sold and will be recognized when the performance obligation is satisfied, which is normally when the loyalty points are redeemed or expire.

Example 1

ABC Ltd has a loyalty program that rewards customers one point per $1 spent. Points are redeemable for $0,10 off future purchases.

ABC Ltd sells various products to Customer X for $2.000; therefore Customer X earns 2.000 points redeemable for $200 off future purchases. Based on past experience ABC Ltd expects redemption of 85% of the points granted.

Effectively ABC Ltd sold for $2.000, goods with a value of $2.000 and loyalty points with a value of $170 ($200 * 85%), meaning that a discount of $170 has been granted. Hence, the retailer would allocate the transaction price of $2.000 between the goods sold and loyalty points, based on the relative stand-alone selling prices as follows:


Stand-alone SP




Goods$2.0002000/2170 = 92%-$158$1.842
Loyalty points$170170/2170 = 8%-$12$158
TOTAL$2.170 -$170$2.000

The initial journal entry required is:

DR Cash $2.000

CR Revenue $1.842

CR Contract Liability $158

Example 2

Continuing from the previous example, let’s say that Customer X redeems 1.000 points (50% of the total points awarded).

The journal entry required is:

Dr Contract Liability $79

CR Revenue $79 ($158 * 50%)