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Lawler Partners Hospitality
NEW ACCOUNTING STANDARD - Customer Loyalty Programmmes
Over recent years many venues have redesigned their loyalty programs to include complex whole of venue programs and tiered based loyalty systems. The introduction of these complex loyalty programs has been facilitated by gaming machine and system suppliers (Konami, IGT, Aristocrat, ebet, etc) developing quite sophisticated gaming/loyalty systems.
From 30 June 2009, a new accounting standard became operable that defines how venues are required to record the liability in respect of loyalty programs. As accounting standards have the force of law, it is incumbent on venues to adopt this new accounting standard.
Over recent years many venues have redesigned their loyalty programs to include complex whole of venue programs and tiered based loyalty systems. The introduction of these complex loyalty programs has been facilitated by gaming machine and system suppliers (Konami, IGT, Aristocrat, ebet, etc) developing quite sophisticated gaming/loyalty systems.
From 30 June 2009, a new accounting standard became operable that defines how venues are required to record the liability in respect of loyalty programs. As accounting standards have the force of law, it is incumbent on venues to adopt this new accounting standard.
The AASB issued Interpretation 13 Customer Loyalty Programmes, dealing with revenue recognition issues associated with customer loyalty programmes. This Interpretation is applicable for financial reporting periods beginning on or after 1 July 2008 (that is effectively for venues with year end dates 30 June 2009 or later).
Specifically, the Interpretation gives guidance on the accounting by a venue for customer loyalty award points granted to its members as part of a sales transaction and which, subject to meeting any further qualifying conditions, the members can redeem these points in the future for free or discounted goods or services.
Interpretation 13 requires a venue to apply paragraph 13 of AASB 118 and account for the award points separately. The result of this means that the proceeds received in relation to the initial transaction should be allocated between the award points issued and the underlying transaction.
The Appendix to Interpretation 13 includes application guidance and illustrative examples.
Illustrative example
In 2006, XYZ RSL Club established "ClubRewards" as a customer loyalty programme, with the following terms and conditions:
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For every $10 spent in gaming, members earn 1 ClubRewards point.
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For every $1 spent in food & beverage, members earn 1 ClubRewards point
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Clients are able to redeem ClubRewards points for any service within XYZ RSL's offerings at the conversion rate of 100 points = $1.
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The points expire, if not redeemed, within 12 months of granting.
A summary of points granted and redeemed since the establishment of the 'Club Rewards' programme is a follows:
| Year |
Granted |
Redeemed |
Total Redeemed |
Remaining |
| |
|
20-June-2006 |
30-June-2007 |
30-June-2008 |
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|
| 2006 |
500,000 |
30,000 |
270,000 |
60,000 |
360,000 |
140,000 |
| 2007 |
4,000,000 |
- |
360,000 |
2,400,000 |
2,760,000 |
1,240,000 |
| 2008 |
6,000,000 |
- |
- |
2,700,000 |
2,700,000 |
3,300,000 |
In 2006 and 2007 the XYZ RSL Club expects that 75% of points will be redeemed prior to expiry. From 2008 the Club expects 80% of the points will be redeemed prior to expiry.
Venues are required to:
Calculate the balance in the deferred revenue account as at 30 June 2008 and the amount of revenue recognised in the year 20 June 2008 in relation to the XYZ RSL Club customer loyalty programme.
Example solution
Balance of deferred revenue at 30 June 2008
Guidance for this question can be found in AASB Interpretation 13 Customer Loyalty Programmes.
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Year
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Deferred Revenue
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Deferred Revenue
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Revenue
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|
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Initial balance
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30-Jun-08
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30-Jun-06
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30-Jun-07
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30-Jun-08
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2006
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5,000
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|
400
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3,600
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1,000
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2007
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40,000
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5,200
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4,800
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30,000
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2008
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60,000
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26,250
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|
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33,750
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Total
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105,000
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31,450
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400
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8,400
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64,750
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Calculations:
For 2006 Granting
Initially deferred = 500,000 points / 100 points/$ = $5,000
Revenue recognised:
2006: 30,000/ (500,000 x 75%) x $5,000 = $400
2007: 270,000/ (500,000 x 75%) x $5,000 = $3,600
2008: $5,000 - 400 - 3,600 = $1,000
Note: As at 30 June 2008, all points for the 2006 year have expired. Only 60,000 ClubRewards points were redeemed during 2008 and therefore all remaining deferred income must be recognised as revenue for the points that have expired.
For 2007 Granting
Initially deferred = 4,000,000 points / 100 points/$ = 4,000
2007: 360,000/ (4,000,000 x 75%) x 40,000 = $4,800
2008: 2,400,000/ (4,000,000 x 80%) x 40,000 = $30,000
For 2008 Granting
Initially deferred = 6,000,000 points / 100 points/$ = 60,000
2008: 2,700,000/ (6,000,000 x 80%) x 60,000 = $33,750
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