Question

Given the uncertainty surrounding refunds, what alternative accounting approaches might Groupon consider for handling refunds?

Answer 1

Alternative accounting approaches might Groupon consider for handling refunds can be,

Paragraph 50 of IFRS 15 states: “if the consideration promised in a contract includes a variable amount, an entity shall estimate the amount of consideration to which the entity will be entitled in exchange for transferring the promised goods or services to a customer.”

Paragraph 51 of IFRS 15: “An amount of consideration can vary because of discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses, penalties or other similar items. The promised consideration can also vary if an entity’s entitlement to the consideration is contingent on the occurrence or non-occurrence of a future event. For example, an amount of consideration would be variable if either a products was sold with a right of return or a fixed amount is promised as a performance bonus on achievement of a specified milestone.”

According to paragraph 53 of IFRS 15, an entity should estimate an amount of variable consideration by using one of two methods - “the expected value” and “the most likely amount” – whichever method is a better prediction of the final outcome.

According to paragraph 56 of IFRS 15, the transaction price should include some or all of an amount of variable consideration estimated in accordance with paragraph 53 only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

Further we can say if group on has followed "the expected value" by considering the past values but now it can follow "the most likely amount" which can be calculated by taking in account the risk factor of offers.