Page 13 - 19. COMPILER QB - INDAS 115

Answer:

As per Ind AS 115, “if in a contract, an entity grants a customer the option to acquire additional goods or

services, that option gives rise to a separate performance obligation only if the option provides a material right
to the customer that it would not receive without entering into that contract”.

Further, IndAS 115 states that if a customer has the option to acquire an additional good or service at a price
that would reflect the stand-alone selling price for that good or service, that option does not provide the
customer with a material right even if the option can be exercised only by entering into a previous contract. In
those cases, the entity has made a marketing offer that it shall account for in accordance with this Standard

only when the customer exercises the option to purchase the additional goods or services.
In the given case, the customer does get a material right by way of a discount of Rs. 500 for every 100 points
that he would not receive without the previous stay in that resort. Thus, the customer in effect pays the
entity in advance for future goods and the entity recognises revenue when the goods are transferred.
According to IndAS 115, it requires an entity to allocate the transaction price to performance obligations on a

relative stand-alone selling price basis. If the standalone selling price for a customer‖s option to acquire
additional goods or services is not directly observable, an entity shall estimate it on the basis of percentage
discount the customer may obtain upon exercising the option and the likelihood of the option getting exercised.
In accordance with above, an entity shall account for award credit as a separate performance obligation of the
sales transactions in which they are initially granted. The value of the consideration the entity expects to be
entitled in respect of the initial sale shall be allocated between the award credits and the other components

of the sale.
In the current case, the standalone selling price of the 100 points is Rs. 500. A Ltd. should allocate the fair
value of the consideration (i.e. Rs. 10,000) between the points and the other components of the sale as Rs.
476 (500/10,500 x 10,000) and Rs. 9,524 (10,000/10,500 x 10,000) respectively in proportion of their standalone

selli ng price. Since A Ltd. supplies the awards itself (i.e. it acts as a principal), it should recognize Rs. 476
as revenue when points are redeemed.

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