What is Consideration payable to a customer?
In short
Cash, credits, coupons or other amounts a seller pays or promises to its customer, such as slotting fees paid to a retailer, reduce the transaction price unless they pay for a distinct good or service from the customer at its fair value.
Key takeaways
- The reduction in revenue is recognized at the later of when the related revenue is recognized and when the payment is paid or promised.
- Any payment above the fair value of a distinct good or service received reduces revenue.
- It applies to payments made to the customer's customers too, such as a manufacturer's coupons.
Where it's tested
FAR: Revenue Recognition — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A company sells a machine for $100,000 with a 5% volume rebate that historically about 60% of customers claim. How should the company initially estimate the transaction price for a sale where the rebate is expected to be claimed?