Revenue – ifrs 15 handbook

Two products returned
Refund liability
200
3
Cash
200
3
To recognise the refund for product returned
Inventory
120
4
Return asset
120
4
To recognise product returned as inventory
Right of return expires
Refund liability
100
Revenue
100
To recognise revenue on expiry of right of return
Cost of sales
60
Return asset
60
To recognise cost of sales on expiry of right to 
recover products from customers
Notes
1. 100 × 3 (the price of the products expected to be returned).
2. 60 × 3 (the cost of the products expected to be returned).
3. 100 × 2 (the price of the products returned).
4. 60 × 2 (the cost of the products returned).

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10 Other application issues | 237
10.1 Sale with a right of return
| 
Partial refunds are measured based on the portion expected to be 
refunded
IFRS 15.55, B23–B25
The measurement of a refund liability reflects the amount expected to be 
refunded to the customer. Therefore, when a right of return allows the customer 
to return a product for a partial refund (e.g. 95 percent of the sales price), 
the refund liability (and the corresponding change in the transaction price) 
is measured based on the portion of the transaction price expected to be 
refunded. For example, this would be the number of products expected to be 
returned multiplied by 95 percent of the selling price.
Restocking fees and costs
IFRS 15.55, B23–B25
An entity sometimes charges a customer a restocking fee when a product is 
returned. The restocking fee is generally intended to compensate the entity for 
costs associated with the product return (e.g. shipping and repacking costs) or 
the reduction in the selling price that an entity may achieve when reselling the 
product to another customer.
A right of return with a restocking fee is similar to a right of return for a partial 
refund. Therefore, a restocking fee is included as part of the estimated 
transaction price when control transfers – i.e. the refund liability is based on the 
transaction price less the restocking fee. 
Similarly, the entity’s expected costs related to restocking are reflected in the 
measurement of the return asset when control of the product transfers. This is 
consistent with the guidance in the standard that any expected costs to recover 
returned products should be included by reducing the carrying amount of the 
return asset recorded for the right to recover those products.
For example, assume that an entity sells 20 widgets to a customer for 30 each 
and the cost of each widget is 15. The customer has the right to return a widget 
but is charged a 10% restocking fee. The entity expects to incur restocking costs 
of 2 per widget returned. The entity estimates returns to be 5%. 
When control of the widgets transfers to the customer, the entity recognises 
the following.