Chasing Myths: Common Misapplications of IFRS and Their Implications Myth #4: PRESENTATION OF "CASH DISCOUNTS"
Cash discounts or early payment discounts are?deductions allowed by some sellers of goods, or by some providers of services (“entity”), to motivate customers to pay their bills within a specified time.
Paragraph 46 of #IFRS 15 states that revenue must be recognized at the transaction price.
Paragraph 47 of the same standard specifies that the transaction price corresponds to the consideration to which the entity is entitled upon transferring control of goods or services to the customer.
Paragraph 51 of the standard states that the transaction price may include a variable component (which must be estimated), corresponding to discounts (among other sources of variability).
In other words, discounts are an integral part of the transaction price. When they are variable (dependent on unknown future events, such as payment within a period that qualifies for a cash discount), they must be estimated. Revenue is recognized at the transaction price, which means at the amount net of discounts of any nature (including cash discounts).
Therefore, under IFRS 15, cash or early payment discounts are recognized as a deduction from revenue and not as other income or as financial income.
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