In an effort to increase sales
In an effort to increase sales, Danube offers two separatemarketing programs to its customers:Program 1 — All visitors to Danube, irrespective of whether theymake any other purchases, can pick up a voucher entitling them to areduction of $1 from the usual $10 selling price of ProductX.Program 2 — Customers who purchase Product W for its normal sellingprice of $7 will receive a voucher entitling them to a reduction of$5 from Product X’s selling price.Only one voucher can be used for any purchase of Product X. It hasbeen determined that the option granted to purchasers of Product Wto purchase Product X for $5 instead of $9 (i.e., the purchaseprice when the $1 voucher is redeemed) gives those customers amaterial right.QuestionHow should Danube account for the two different types ofvouchers?
Answer:
Coupons: Coupons are the discounts provided bythe sellers to its customers to attract them and increse theirsales. It is one of the Promotional activities made by thecompany.
Danube Offers two seperate progrms to its customers to increasesales.
Program 1: Given, Danube issues all visitors avoucher of $1 from usual $10 selling price product of X,irrespective of whether they make any purchase or not.
Accounting Treatment:
In this case we are not going to make any provisions for Coupondiscount in the financial statements at the time of coupondistribution because we are not sure that they purchase.
When a purchase is made then we recognise the revenue for $9($10- $1) when the coupon is redeemed.
Program 2: Given, if acustomer purchases a product W, for a normal selling price of $7,will receive a voucher entitling to reduce a reduction of $5 fromproduct X’s Selling price.
In this situation, company is giving the voucher discount forthe next purchase of product X. The discounnt is not for theProduct W. At the time of Puchase of Product W, the whole amount of$7 is recognised as revenue as there is no discount to theimmediate purchase and no reduction to COGS because there is noguarantee of making the next purchase.
When the customer makes the next purchase of Product X then thenet Value of $5 is recognised as revenue after deducting the couponvalue of $3 from program 2.
Thus, the Coupon Value is accounted only when the actual salesare made.
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