Hi , I havent been on for a while but have a question about loyalty cards. I used to work for a restaurant ( not in a finance role ) but left after studying to work in a finance role! Anyway theye were a bit short staffed so they called and asked if I could help out and while I was there a customer wanted to redeem some of his loyalty points which are added to their bill everytime they visit and get their card swipedetails. It's 5 points for every pound and it's converted to cash.
Anyway it was £37.00 that was taken from his bill and it occurred to me ( now that I work in a finance role!) whether the points accrued by the customer are being accrued anywhere.
In my head I think that when someone swipes their card and gains points we should be creating an accrual for that and when they finally redeem some points we then reallocate the cost from accruals to sales .
Would that be correct? Some customers have quite a substantial amount of money on their cards so if they cashed that in one day it would essentially wipe out a large amount of he sales for that day.
Any thoughts would be greatly appreciated.
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Jo Gillespie AICB
Thoughts are my own and must not be taken as professional advice.
It's 5 points for every pound and it's converted to cash.
Hi Jo
Sorry if I sound a bit thick but it is a Sunday, what do you mean by the above, does the customer get 5 points for every pound spent and if so how much cash do these points convert into? Or do they convert the points they have into cash as in 5 for £1.
Not sure but I would have thought that the loyalty points that have been given to the customer would be treated as a liability until they have been redeemed.
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Doug
These are only my opinions of how I see things and therefore should not be taken as advice
Good question Doug. Not quite enough info here and its all complex stuff.
Covered by fair value revenue recognition which I think is FRS102/IAS18 soon to be superseded by IFRS15 from Januray next year.
If the implementation of the scheme is relatively recent then it might be best to create a liability and release that liability when the points are redeemed or indeed when they expire (if they do indeed expire!)
But if the scheme has been in place for some time and you can reliably estimate the take up of points being used and that a material right is involved (which I believe it is from your description) then the fair value calculation should be used.
I would strongly suggest they have a chat with their Accountant.
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
Dear meeeeee, clearly I've only read what I wanted to read!
I'm sorry.
I'll explain my answer first;
I was falsely reading, clearly, customer spends X, customer will get Y off their next invoice or spend. Therefore to me that is a discount allowed against the next invoice.
Clearly I'm wrong.
Maybe as a consumer I shop in the wrong places, but I've never received a cash return due to loyalty. The standard seems to be spend X and get a voucher, or accrue points to be spent in the same store - as a discount.
(Although after writing that, current account transfers can earn a 'reward' for switching, so...)
Getting back to your actual question, interpretation correct I hope this time;
As the liability is redeemable on demand would folk agree it to be a current liability. If it is not current then it should be held at the lower of PV or fair value?
Also the tax position comes into play, the business is not going to want to be taxed on a full receipt value, if it expects to repay on loyalty, so is X recognised as income and the loyalty value sent to deferred income, or equivalent- awaiting a refund of kind?
On a totally unrelated point, I remember reading a few months back that large corporations which offer voucher cards, think big high street - have built within them a 12 month sell by date, or such, so on that basis the initial entry would be Dr Bank, Cr Deferred income - upon expiry, would the entry, or should the entry be Dr deferred, Cr sales?
Clearly refunding is almost impossible, so in all intents it should be recognised as income? Maybe the next scandal to come to light.
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Johnny - Owner of an overly-active keyboard.
A man who can read, yet doesn't, is in no way wiser than a man who can't.
Hi everyone. When the card is swiped the points are then calculated as a cash balance. I'm sorry if that bit didn't make sense. I think it works out at 5 points per pound and every pointment is worth 5p so 25p per pound. The customer then builds up a cash balance that can be redeemed at anytime to purchase food and drink. When the customer decides they want to redeem their 'points' we put the value in and this is taken from their bill.
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Jo Gillespie AICB
Thoughts are my own and must not be taken as professional advice.
Hi everyone. When the card is swiped the points are then calculated as a cash balance. I'm sorry if that bit didn't make sense. I think it works out at 5 points per pound and every pointment is worth 5p so 25p per pound. The customer then builds up a cash balance that can be redeemed at anytime to purchase food and drink. When the customer decides they want to redeem their 'points' we put the value in and this is taken from their bill.
That's a hell of a lot of giveaway percentage wise, if they get heavy take up then it's a fair old dent in their margins that could come their way.
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
Hi everyone. When the card is swiped the points are then calculated as a cash balance. I'm sorry if that bit didn't make sense. I think it works out at 5 points per pound and every pointment is worth 5p so 25p per pound. The customer then builds up a cash balance that can be redeemed at anytime to purchase food and drink. When the customer decides they want to redeem their 'points' we put the value in and this is taken from their bill.
That's a hell of a lot of giveaway percentage wise, if they get heavy take up then it's a fair old dent in their margins that could come their way.
Could be a marketing ploy, with the "giveaway" already built into the margins. I draw a parallel with Costa and Nero's. A regular visitor is effectively getting a 10% discount, but it's just a marketing ploy to fool you into thinking they're giving you something for nothing.
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John
Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.
Hi everyone. When the card is swiped the points are then calculated as a cash balance. I'm sorry if that bit didn't make sense. I think it works out at 5 points per pound and every pointment is worth 5p so 25p per pound. The customer then builds up a cash balance that can be redeemed at anytime to purchase food and drink. When the customer decides they want to redeem their 'points' we put the value in and this is taken from their bill.
That's a hell of a lot of giveaway percentage wise, if they get heavy take up then it's a fair old dent in their margins that could come their way.
Could be a marketing ploy, with the "giveaway" already built into the margins. I draw a parallel with Costa and Nero's. A regular visitor is effectively getting a 10% discount, but it's just a marketing ploy to fool you into thinking they're giving you something for nothing.
I do hope so John - I had thought about the coffee shop ones and one I had seen a while back with a multiple outlet restaurant (not a big chain!) but this seems to be working about double the £ rate and margins are generally very tight in the restaurant industry, so thought it worth mentioning to see if someone has actually done any forecasting (I do hope so!)
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
I think it works out at 5 points per pound and every pointment is worth 5p so 25p per pound.
Why would they not just say you get 1 point for every £1 spent and 1 point is worth 25p, seems a lot easier, I know Joanne and John have both commented on this but they are giving away 25% of the bill to spend next time you visit, seems a very large discount to be giving away unless the prices have been inflated that much!!
Is there a bar in the restaurant??
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Doug
These are only my opinions of how I see things and therefore should not be taken as advice
