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ACCA Applied Skills · Financial Reporting · Revenue

Larch Co sells a printer to a customer and also grants a right to buy ink cartridges in future at a 40% discount, which is a discount the customer would not receive without buying the printer. Under IFRS 15, how should Larch account for the discount right?

The discount right is a material right and therefore a separate performance obligation. Because the customer receives a discount only by having bought the printer, part of the transaction price is allocated to it and recognised as revenue when the cartridges are bought or the right expires.

  1. AAs a marketing cost expensed when cartridges are sold at the discount
  2. BAs a material right, which is a separate performance obligation to which part of the price is allocatedCorrect
  3. CAs a provision for onerous contracts
  4. DAs a disclosure only, with no accounting effect at the sale of the printer

Explanation

An option to acquire additional goods at a discount that the customer would not otherwise receive is a material right. It provides a benefit linked to the existing contract, so it is a separate performance obligation. Part of the transaction price is allocated to it and deferred until the option is exercised or lapses.

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