A supplier sells goods to a retailer and, under a separate agreement, pays the retailer a cash rebate for shelf placement that is not in exchange for any distinct good or service the retailer transfers to the supplier. Under IFRS 15 paragraph 70, how should the supplier account for this rebate?
- As a marketing or selling expense, separate from revenue, because the rebate relates to promotional shelf placement rather than to the goods themselves
- As a reduction of the transaction price for the goods sold to the retailer, and therefore of revenue, recognized no earlier than when the supplier recognizes revenue for the related goods
- As a reduction of the transaction price only if the retailer is also the end consumer of the goods, otherwise the rebate has no effect on the supplier's revenue
- As additional revenue-generating consideration received from the retailer, because payments between a supplier and a customer under a separate agreement are outside the scope of IFRS 15's transaction-price guidance
Why B? And why not the others?
Correct answer: B. As a reduction of the transaction price for the goods sold to the retailer, and therefore of revenue, recognized no earlier than when the supplier recognizes revenue for the related goods
IFRS 15 paragraph 70 requires consideration payable to a customer that is not in exchange for a distinct good or service to be accounted for as a reduction of the transaction price, and therefore of revenue, recognized no earlier than the later of when the related revenue is recognized or when the payment is made or promised; the shelf-placement rebate here is not exchanged for any distinct good or service the retailer provides to the supplier, so it reduces the supplier's revenue rather than being reported separately. The option treating the rebate as a marketing expense separate from revenue is wrong because paragraph 70 specifically requires this type of payment to reduce revenue rather than be presented as an operating expense. The option conditioning the revenue reduction on the retailer being the end consumer is wrong because paragraph 70's requirement applies regardless of whether the immediate customer resells the goods further down the distribution chain. The option treating the rebate as additional revenue-generating consideration is wrong because payments made by a supplier to its customer under a related agreement fall squarely within the transaction-price guidance in IFRS 15, not outside its scope.
Source: IFRS 15 Revenue from Contracts with Customers, paragraph 70 (consideration payable to a customer)