"IFRIC 13: Customer Loyalty Programmes"

IFRIC 13, titled "Customer Loyalty Programmes," provides guidance on the accounting treatment for customer loyalty programmes under the International Financial Reporting Standards (IFRS). Customer loyalty programmes are promotional strategies used by businesses to encourage repeat purchases by offering incentives like points, miles, or other benefits that customers can redeem in the future.

Key aspects of IFRIC 13 include:

1. Revenue Recognition: The interpretation clarifies how and when a company should recognize revenue associated with award credits granted to customers. The key principle is that the revenue associated with the awarded credits should be deferred and recognized only when the company fulfils its obligations under the loyalty programme.

2. Allocating Fair Value: When a customer makes a purchase that will earn loyalty awards (like points or miles), IFRIC 13 requires that the consideration received (or receivable) be allocated between the awarded credits and the other components of the sale. The allocation is based on their relative fair values.

3. Estimating the Fair Value: The fair value of the consideration allocated to the awarded credits is determined by considering the fair value of the benefits for which the credits can be redeemed. It factors in the likelihood of redemption based on historical or estimated future redemption rates.

4. Liability Recognition: The company should recognize a liability for its obligation to provide the loyalty rewards. This liability should be measured at the fair value of the rewards for which it expects the credits to be redeemed.

5. Subsequent Adjustments: The liability should be adjusted over time for changes in the estimated amount of redemption. The company will recognize revenue when it fulfils its obligations under the programme, either by providing the promised goods or services or by losing the right to provide them.

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