IFRS 15 in the spotlight: Accounting for vouchers

IFRS 15 in the spotlight: Accounting for vouchers

IFRS 15 ‘Revenue from contracts with customers’ is mandatory for periods beginning on or after 1 January 2018. In a series of articles before its effective date, we are going to look at a different aspect of the standard’s requirements. In this first article, we look at the treatment of voucher schemes under IFRS 15.

Why do I need to worry about vouchers?

Although IFRS 15 has five overarching principles, it also contains a significant amount of more detailed and prescriptive Application Guidance on those principles which, its name notwithstanding, constitutes binding requirements rather than non-binding guidance. Two areas are particularly relevant to voucher schemes:

  • Customers’ unexercised rights (breakage)
  • Customer options for additional goods or services (loyalty schemes).

In both cases, the effect of IFRS 15 is likely to be the deferral of revenue until additional goods or services are transferred to the customer in exchange for the vouchers.

A customer’s unexercised rights (breakage)

When a customer buys a non-refundable gift voucher that can be exchanged for goods or services of the issuing retailer, the retailer will recognise a ‘contract liability’ on its balance sheet. Ordinarily, that contract liability will be released to the income statement as and when the voucher is redeemed. What happens, however, if there is an expectation that the voucher will never be redeemed (eg because it has been lost)?

When drafting IFRS 15, the IASB considered whether, in such circumstances, the retailer should recognise as revenue immediately on receipt of the customer payment for vouchers that they did not think would be redeemed (estimated breakage). It rejected that approach however and, instead, required the retailer to recognise the expected breakage amount as revenue in proportion to the pattern of rights exercised by the customer. In other words, the value of the expected breakage is combined with the value of the vouchers that the retailer ultimately expects to be redeemed and recognised when those vouchers are redeemed.

In order to calculate the value of breakage revenues that should be combined in this calculation, the retailer must determine the value of vouchers that it can demonstrate are ‘highly probable’ not to be redeemed. This must be an evidence-based estimate. If the retailer does not have sufficient evidence over the expected breakage, it recognises the breakage amount as revenue when the likelihood of the customer exercising its remaining rights becomes remote.


A retailer sells a gift card for £100.00. Based on historical experience, the retailer believes that £10 of the gift card will ultimately not be redeemed but can only demonstrate that expectation to a high probability for £6. The retailer should recognise as revenue £1.064 (£100/£94) for each £1 redeemed, after £90 has been redeemed that would leave £4.26 (£4*£1.064) to be recognised either as the remaining £4 is redeemed or when likelihood of the customer exercising its remaining rights becomes remote (eg when the gift card reaches its expiry date).

Customer options for additional goods and services (loyalty schemes)

When a customer acquires 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. IFRS 15 requires such offers to be considered a separate performance obligation if they constitute a ‘material right’ to the customer. A material right is a right that the customer would not have if they had not entered in to the original transaction. For example, a “10% off your next purchase” voucher provided as a result of a sales transaction would only constitute a material right if the retailer did not routinely offer a similar right for free in newspaper adverts.

Where a loyalty scheme does constitute a material right, revenue is apportioned to it in accordance with the relative stand-alone selling prices of the items sold.


As part of a loyalty scheme, a retailer gives customers a ‘free’ loyalty point for every £10 that they spend, with each point giving a £1 discount on future purchases (past experience suggests that it is highly probably that only 90% of the points will be redeemed). The retailer concludes that the points are a ‘material right’.

The retailer sells goods to a customer for £1,000 and also issues 100 loyalty points. The £1,000 is allocated to the original goods and the points based on their relative fair values: £917.43 (1,000*[1,000/[1,000+90]]) would be allocated to the goods and £82.57 (1,000-917. 43) to the points. The retailer would recognise £0.92 (£82.57/£90) for each £1 redeemed.

For help and advice on revenue recognitions issues please get in touch with your usual BDO contact or Scott Knight.