Question

In an effort to increase sales, Danube offers two separate marketing programs to its customers:
Program 1 — All visitors to Danube, irrespective of whether they make any other purchases, can pick up a voucher entitling them to a reduction of $1 from the usual $10 selling price of Product X.
Program 2 — Customers who purchase Product W for its normal selling price 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 has been determined that the option granted to purchasers of Product W to purchase Product X for $5 instead of $9 (i.e., the purchase price when the $1 voucher is redeemed) gives those customers a material right.
Question
How should Danube account for the two different types of vouchers?

Answer 1

Coupons: Coupons are the discounts provided by the sellers to its customers to attract them and increse their sales. It is one of the Promotional activities made by the company.

Danube Offers two seperate progrms to its customers to increase sales.

Program 1: Given, Danube issues all visitors a voucher 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 Coupon discount in the financial statements at the time of coupon distribution 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 a customer purchases a product W, for a normal selling price of $7, will receive a voucher entitling to reduce a reduction of $5 from product X's Selling price.

In this situation, company is giving the voucher discount for the next purchase of product X. The discounnt is not for the Product W. At the time of Puchase of Product W, the whole amount of $7 is recognised as revenue as there is no discount to the immediate purchase and no reduction to COGS because there is no guarantee of making the next purchase.

When the customer makes the next purchase of Product X then the net Value of $5 is recognised as revenue after deducting the coupon value of $3 from program 2.

Thus, the Coupon Value is accounted only when the actual sales are made.