Revenue – ifrs 15 handbook

Residual approach generally not appropriate for determining 
stand-alone selling price of loyalty points
Generally, the residual approach will not be available for determining the stand-
alone selling price of loyalty points because this approach is available only in 
limited circumstances – i.e. when the stand-alone selling price is highly variable 
and uncertain. See 
Section 4.1
for further discussion on determining stand-
alone selling prices.
 
Awards supplied by a third party
IFRS 15.BC383–BC385
Some customer loyalty programmes may involve multiple parties. If another party 
is involved in the customer loyalty programme, then an entity needs to assess 
whether it acts as an agent or as a principal with respect to the loyalty points and, 
if relevant, the goods or services to be delivered in exchange for the points (see 
Section 10.3
). 
Loyalty programmes may be structured in different ways. Typical arrangements 
include the following.
– 
Points are issued by the entity and can be redeemed only for goods or services 
provided by the entity:
In these arrangements, the entity is usually a principal 
with respect to the loyalty points and the goods or services to be delivered in 
exchange for the points because it does not satisfy its performance obligation 
until the goods or services are transferred to the customer.

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10 Other application issues | 283
10.4 Customer options for additional goods or services
| 
– 
Points are issued by the entity and can be redeemed for goods or services 
provided by the entity or by a third party at the customer’s discretion:
In these 
arrangements, the entity is usually a principal with respect to the loyalty points 
because it is obliged to ‘stand ready’ until the customer has made its choice. The 
entity satisfies its performance obligation and recognises revenue only when the 
customer redeems the points, either from the entity or from the third party. An 
entity assesses whether it acts as an agent or as a principal with respect to the 
goods or services to be delivered in exchange for the points.
– 
Points can be redeemed for goods or services provided only by a third party: 
In these arrangements, the entity assesses whether it acts as an agent or as 
a principal with respect to the points (i.e. does it control the points before they 
are transferred to the customer?). In some cases, this assessment may be 
challenging. For example, a bank may offer its credit card customers a loyalty 
programme under which the customers earn points to be redeemed with a 
specific airline. Judgement is required to determine whether the bank controls 
the points before they are transferred to customers (see 
Section 10.3
). Under this 
type of arrangement, the entity typically satisfies its obligation when the points 
are transferred to the customer.
IFRS 15.B36, BC383–BC385
If the entity acts as an agent, then the net amount retained is recognised as revenue 
– i.e. the difference between the revenue allocated to the points and the amount 
that the entity pays to the third party.