Accounting for restocking fees Some retail and consumer products entities

Accounting for restocking fees some retail and

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Accounting for restocking fees Some retail and consumer products entities charge customers a restocking fee when they return products to compensate them for various costs associated with the return, such as shipping and repacking costs. TRG members discussed 19 the accounting for such fees and generally agreed that restocking fees for goods expected to be returned should be included in the estimate of the transaction price at contract inception and recorded as revenue when (or as) control of the good transfers. This may be a change in practice for entities that recognized restocking fees when they received them under legacy GAAP. Private label and co-branded credit card arrangements (Updated July 2019) Retailers often partner with financial institutions to issue credit cards. In a private label credit card arrangement, credit card holders can use their credit cards only for purchases of goods or services from the retailer. In another type of arrangement called a co-branded credit card arrangement, credit card holders can use their credit cards to purchase goods or services from the retailer or other merchants. These types of credit card arrangements are common in the retail industry and typically are used by retailers to promote consumer loyalty and increase sales. In both arrangements, a retailer typically provides the financial institution a license to use the retailer’s brand in marketing the credit card. Retailers may also provide other goods and services to the financial institution (e.g., access to the retailer’s customer list or loyalty program points). A retailer may receive a variety of payments from the financial institution, including fixed up-front payments, royalties based on credit card purchases, a share of the profits and/or other payments for marketing activities. A retailer may determine that both the credit card holder and the financial institution are customers of the retailer in the credit card arrangement. This may be the case if the retailer believes it is promising to transfer goods or services to both the credit card holder (i.e., retailer’s goods or services) and the financial institution (e.g., providing access to the retailer’s customer list and a license to use its brand). Identification of performance obligations A retailer may promise different goods or services in contracts with a financial institution for private label and co-branded credit cards. Examples of goods or services that a retailer may promise to the financial institution include the following: License to use the retailer’s intellectual property (IP) (e.g., trade names, trademarks) Access to the retailer’s customer list Marketing-related activities Loyalty program points provided to credit card holders Other services (e.g., free shipping) provided to credit card holders Accounting for credit card arrangements is complex and requires judgment.
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EY AccountingLink | ey.com/us/accountinglink 14 | Technical Line How the new revenue standard affects retail and consumer products entities
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  • Fall '17
  • meenakshi

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