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Loyalty Payment to Customer: time based

John Paul's Profile

Hi, Hoping someone could help with an amortization issue and also any technical reasons why under IFRS and US GAAP. We pay our customers an upfront sign-on bonus (eg: $600), and if they remain our customer for at least 2 years they retain the full $600. If the customer terminates their agreement with us before 2 years they are required to pay back a portion of the bonus, but it is as per a schedule: 1 – 12 months: pay back all the bonus 13 – 24 months: customer ‘earns’ $50 per month, and would pay back bonus as follows if they terminate early: 13: repay $550 14: repay: $500 15: repay $450 ... 23: repay $50 24: no repayment. We are accounting for the bonus as a reduction from revenue amortizing over the 24 months. Initial entry is on payment to the customer is: DR Deferred Expense $600 CR Cash $600 But, should we amortize the DR to revenue: - straight-line over 24 months (ie: $25 per month over 24 months), or - $0 for the first 12 months as the customer has not qualified to retain any of the bonus yet, and will start to ‘earn’ in year 2 so $50 per month for 12 months of year 2 - or some other allocation basis? The bonus is not dependant on any thresholds that the customer spends with us, only that they continue to be a signed-up customer. We account under IFRS but refer to US GAAP where appropriate so any reference to either would be a big help. Thank you,

Answers

Topic Expert
Scott MacDonald
Title: President/Owner
Company: AlphaMac Resources, Inc.
(President/Owner, AlphaMac Resources, Inc.) |

See IFRS 15 under contract costs. It basically says amortize as revenue is received, which would then say to amortize over the term of the contract which in this case is 24 months.

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