IFRS 15 New Revenue Model: Spotlight on Retail, Wholesale and Distributor Sector

FEC Approves Revised National Tax Policy

Below, we highlight certain key impacts resulting from the new Standard that will be of particular interest to those in the retail, wholesale and distribution sector and then consider parts of the new Standard that may contribute to those impacts. Of course, many more complexities exist and, as described below, Deloitte has produced further guidance which explores these in greater detail.


How will the new Standard impact the presentation of payments made to customers, e.g. Slotting fees?

In the retail, wholesale and distributor sector, suppliers often make payments to retailers of their products in order to have their products prominently displayed, or for co-operative advertising (advertising by the retailer of the supplier’s product). Under IFRS 15, there is explicit guidance that addresses how to account for payments made to a customer. Suppliers will need to consider whether the payment is made for a separate good or service or should alternatively be treated as a deduction from revenue.

In the retail, wholesale and distributor sector, suppliers often make payments to retailers of their products in order to have their products prominently displayed, or for co-operative advertising (advertising by the retailer of the supplier’s product). Under IFRS 15, there is explicit guidance that addresses how to account for payments made to a customer. Suppliers will need to consider whether the payment is made for a separate good or service or should alternatively be treated as a deduction from revenue.
Royalty payments relating to licenses
The Standard also introduces a specific restriction for royalty payments relating to licenses of intellectual property, for example, some types of retail franchise licenses. If royalty payments are based on usage or onward sale, entities are restricted from recognising the associated revenue until the usage or onward sale has occurred, even if it is possible to make a reliable estimate of this amount based on historical evidence.
Should revenue be adjusted for the effects of the time value of money?
IFRS 15 introduces new and more extensive guidance on financing arrangements and the impact of the time value of money. Financing arrangements such as buy now and pay later are commonplace in the retail, wholesale and distribution sector.
Under the new Standard, the financing component, if it is significant, is accounted for separately from revenue. This applies to payments in advance as well as in arrears, but subject to an exemption where the period between payment and transfer of goods or services will be less than one year. This new guidance may change current accounting practices in some cases.
What else might change?
In addition to the key changes discussed above, the new Standard introduces detailed guidance in many areas regarding the reporting of revenue and entities will need to ensure that they have considered all of these when assessing the extent to which their accounting policy for revenue may need to be amended.

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