Solving IFRS 15 Loyalty Program AOs in CPA Canada PEP and CFE Cases

The core concept of IFRS 15 is the timing of revenue recognition, which is dependent on the timing of promises to be fulfilled by the entity. IFRS 15 provides significant guidance that can be applied to various situations retailers face, such as the treatment of customer loyalty points. Understanding loyalty programs is critical to foreseeing the liability a company owes and is a great topic for CPA Canada to test your IFRS 15 knowledge.

Example of IFRS 15 Loyalty Program AO

For example, consider the loyalty program of Entity A that sells shoes. For every $1 worth of shoe purchases, a customer receives 1 loyalty point. These points can be spent on purchases from Entity A and each point equals $0.10 worth of purchases. Based on historical trends, Entity A expects 5% of points to expire being unredeemed. That is to say, it is expected that 95% of loyalty points will be redeemed. So far, Entity A has sold $1,000 of shoes during the period.


In this case, this option provides a material right to the customer that it would not receive without entering this contract (the purchase of shoes). It also gives the customer the option to acquire additional shoes at a price lower than the stand-alone selling price of the shoes in the future. This transaction involves committing to two performance obligations:

  • Goods purchased
  • Rights related to the loyalty points.

Because of this, it is necessary to estimate the stand-alone selling price of the option to allocate based on the separate performance obligations. For case writing, these criteria should be discussed with application to specific case facts. Write using the IFRS 15 5-step model and analyze the two performance obligations.

This estimate should account for the following factors:

  • Discount the option gives
  • Discount the customer could receive without the option
  • Likelihood the option will be exercised


First, you must calculate the stand-alone price of the option. This is equal to the amount sold, factoring in the value of the points and point redemption rate ($1,000 x $0.10 x 95% = $95). The total transaction value is equal to the initial purchase value plus the value of the option ($1,000 + $95 = $1,095).

The amount sold ($1,000) should then be proportionally allocated to the loyalty program as a credit to accounts payable, and allocated to the product sales as a credit to revenue upon the initial sale of shoes:

  • Allocated to the loyalty program = $1,000 x ($95 / $1,095) = $87
  • Allocated to the sale of shoes = $1,000 x ($1,000 / $1,095) = $913
    (Note: As a check the total should equal the amount the customers have paid for (i.e. $1,000)).


If the likelihood of redemption cannot be determined, management may choose to assume 100% redemption or recognize revenue to the points on redemption. Revenue will also be recognized when the options for these points expire.

For some additional guidance on IFRS Loyalty Programs, check out paragraphs 26, B39-B43.

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