IFRS 15 · Retail & E-Commerce

IFRS 15 Revenue Recognition for Retail & E-Commerce

Handle the unique revenue recognition challenges of retail and e-commerce, from return provisions and loyalty programmes to gift card breakage and bundled promotional offers.

Step 1: Identify the Contract

IFRS 15.9–21All five criteria must be met for a contract to exist
a
Have the parties approved the contract and are committed to perform their respective obligations?
IFRS 15.9(a)
Approval can be written, oral, or implied by customary business practice. Commitment means the parties intend to enforce their respective rights. Consider whether there is a signed agreement, purchase order, or established pattern of dealing that evidences approval.
b
Can the entity identify each party's rights regarding the goods or services to be transferred?
IFRS 15.9(b)
The contract must establish enforceable rights for each party. This includes identifying what goods or services the entity will transfer and what the customer is entitled to receive. Even if terms are implicit or established by customary business practice, rights must be identifiable.
c
Can the entity identify the payment terms for the goods or services to be transferred?
IFRS 15.9(c)
Payment terms include the amount, timing, and form of consideration. The terms need not be explicitly stated if they can be determined from customary business practices or the contract's terms and conditions. Consider fixed prices, variable elements, milestone payments, and credit terms.
d
Does the contract have commercial substance — that is, the risk, timing, or amount of the entity's future cash flows is expected to change as a result of the contract?
IFRS 15.9(d)
A contract has commercial substance when it is expected to change the entity's future cash flows. This criterion prevents entities from recognising revenue on reciprocal exchanges of goods or services of similar nature and value (e.g., barter transactions between oil companies to fulfil demand in different locations). Most arm's-length commercial transactions have commercial substance.
e
Is it probable that the entity will collect the consideration to which it is entitled in exchange for the goods or services that will be transferred to the customer?
IFRS 15.9(e)
Assess the customer's ability and intention to pay. Consider the customer's credit history, financial condition, collateral or guarantees, and the entity's past experience with similar classes of customers. 'Probable' means more likely than not under IFRS. If the entity offers a price concession, assess collectability on the reduced (expected) amount, not the stated contract price (IFRS 15.9.A1).

Contract Combination Assessment

(Optional)
Are there multiple contracts with the same customer (or related parties) entered at or near the same time that should be combined?

Contract Modification Assessment

(Optional)

IFRS 15 Revenue Recognition for Retail & E-Commerce

IFRS 15 Revenue Recognition in Retail & E-Commerce involves several distinctive challenges around customer returns, loyalty programmes, gift cards, and principal-versus-agent assessment for marketplace operators.

Right of Return — Variable Consideration: IFRS 15.B20-B27 provides specific guidance on sale with a right of return. Retailers must recognise: (a) revenue for products at the amount expected to be received (excluding expected returns); (b) a refund liability; and (c) an asset for the right to recover returned products. The estimate must be updated at each reporting date using historical return rates segmented by product category, channel, and seasonality.

Customer Loyalty Programmes: Under IFRS 15.B39-B40, loyalty points providing a material right are a separate performance obligation. The entity allocates transaction price to points based on their relative SSP adjusted for expected breakage. Revenue is deferred as a contract liability and recognised when points are redeemed or expire.

Gift Cards and Breakage: Gift cards create a contract liability upon issuance. IFRS 15.B44-B47 addresses breakage — if the entity can make a reasonable estimate, it recognises expected breakage in proportion to the pattern of rights exercised.

Principal versus Agent — Marketplace Operators: IFRS 15.B34-B38 requires assessing whether the entity controls goods before transfer. Marketplace operators that never take title, where suppliers set prices and bear return risk, are typically agents recognising only commission revenue.

Bundled Promotional Offers: 'Buy one get one free' offers require allocation across all items based on relative SSPs. Free delivery above a threshold is a separate performance obligation.

Common Audit Pitfalls:

  • Using aggregate return rates without segmentation.
  • Failing to identify loyalty points as a separate PO.
  • Not recognising gift card breakage proportionally.
  • Incorrectly classifying marketplace revenue as gross.

Typical Contract Structures

Retail contracts are typically short-duration point-of-sale transactions. Terms are established through published pricing, return policies, loyalty programme terms, and delivery commitments. Marketplace operators must assess principal vs agent for each transaction.

Common Performance Obligations in Retail & E-Commerce

Product sale Loyalty points Gift card redemption Delivery service Extended return protection

Regulatory Context

Consumer protection regulations affecting return rights vary by jurisdiction. The refund liability should reflect the more generous of statutory or contractual return rights.

Worked Example: Online Electronics Bundle with Loyalty Points and Free Delivery

ShopWave sells a laptop for €1,200 with a 30-day return policy. The customer earns 600 loyalty points (€0.10 each, 85% redemption rate). Free standard delivery (normally €15). Historical laptop return rate: 8%.

Step 1: Identify the Contract

Contract formed at checkout. All IFRS 15.9 criteria met — both parties approve, rights identified, payment terms clear, commercial substance, collectability probable.

Step 2: Identify Performance Obligations

Three POs: (1) laptop — distinct; (2) 600 loyalty points — material right under IFRS 15.B39-B40; (3) delivery — distinct service priced separately at €15. The 30-day return right creates variable consideration, not a separate PO.

Step 3: Determine the Transaction Price

€1,200 stated price. Variable consideration from 8% return rate: expected return €96. Constrained transaction price = €1,104.

Step 4: Allocate the Transaction Price

SSPs: Laptop €1,200; Points 600 × €0.10 × 85% = €51; Delivery €15. Total SSP = €1,266. Allocated: Laptop = €1,045.97; Points = €44.47; Delivery = €13.56.

Step 5: Recognise Revenue

Laptop (€1,045.97): at delivery. Delivery (€13.56): on completion. Points (€44.47): deferred, recognised on redemption/expiry. Refund liability of €96 and returns asset recorded.

IFRS 15 Revenue Recognition Audit Toolkit — free PDF

Complete audit toolkit: IFRS 15 five-step decision flowchart poster, contract assessment template, PO identification checklist, SSP allocation worksheet, and industry-specific application notes.

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Frequently Asked Questions

How should retailers estimate the refund liability for returns?
Use historical return data segmented by product category, channel, geography, and season. Recognise a refund liability for expected returns and a returns asset for expected cost of recovered products. Reassess at each reporting date.
Are loyalty points always a separate performance obligation?
Only if they provide a material right the customer wouldn't receive without the contract (IFRS 15.B39-B40). If the discount merely matches publicly available promotions, it's not a material right.
How is gift card breakage recognised?
Per IFRS 15.B44-B47, if breakage can be estimated, recognise it proportionally to the pattern of rights exercised. If not, recognise only when redemption becomes remote.
When is a marketplace operator an agent?
Under IFRS 15.B34-B38, agent indicators include: no title or inventory risk, supplier sets price, entity earns commission, supplier bears credit/return risk. Agents recognise net revenue.
How should 'buy one get one free' be accounted for?
The total price is allocated across all items based on relative SSPs (IFRS 15.74-75). Each item receives a proportional share.

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