Accounting Treatment of Incentives given to customers under Ind AS 115

An incentive given to the customers in the form of cashback, a coupon, a voucher, discounts etc. gives rise to the question of whether incentives should be accounted for as a reduction in revenue (Net Basis) or as an expense (Gross Basis).

In this regard, Para 70 of Ind AS 115, Revenue from contracts with customers, states that “An entity shall account for consideration payable to a customer as a reduction of the transaction price and, therefore, of revenue unless the payment to the customer is in exchange for a distinct good or service (as described in paragraphs 26-30) that the customer transfers to the entity. Where the consideration payable to a customer includes a variable amount, an entity shall estimate the transaction price (including assessing whether the estimate of variable consideration is constrained) in accordance with paragraphs 50-58 of Ind AS 115.

Whereas, as per para 71 of Ind AS 115, If consideration payable to a customer is a payment for a distinct good or service from the customer, then an entity shall account for the purchase of the good or service in the same way that it accounts for other purchases from suppliers.

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