A retailer must determine which of the promised goods and services in its

A retailer must determine which of the promised goods

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A retailer must determine which of the promised goods and services in its contract with a financial institution to account for as separate performance obligations. In addition to providing a license to use the retailer’s IP, a retailer may also provide access to its customer list. Access to the retailer’s customer list and use of the retailer’s brand generally would be combined into a single performance obligation if those individual promises are not separately identifiable. For example, if access to the retailer’s customer list and the use of its brand significantly affect each other, the retailer may determine that these items should be accounted for as a single performance obligation. Similarly, in some cases, marketing activities may be combined with the license of the retailer’s IP into a single performance obligation if those individual promises are not separately identifiable. Because loyalty points can be accumulated and redeemed for free or discounted goods and services, a loyalty point a retailer provides to a credit card holder generally would represent a material right and should be accounted for as a separate performance obligation. For example, in a co-branded credit card arrangement where a retailer sells loyalty points to the financial institution at an agreed upon price per point, and the financial institution subsequently awards the points to its customers (i.e., credit card holders), the material right is a performance obligation in the contract with the financial institution. In other arrangements, the sale of points may not be a promise in the contract with the financial institution. Once a retailer identifies the performance obligations in a credit card arrangement, it must determine the transaction price, allocate the transaction price to the performance obligations in proportion to their standalone selling prices and recognize revenue when (or as) each performance obligation is satisfied. The standard generally requires an entity to estimate variable consideration (including consideration of the constraint) to determine the transaction price and allocate the transaction price using the relative standalone selling price method. However, there are some exceptions to the relative standalone selling price allocation method such as when the variable consideration is attributable to one or more, but not all, performance obligations in the contract and certain conditions are met. Because a retailer may identify more than one performance obligation in a credit card arrangement, it should consider whether any of the exceptions to allocating the transaction price using the relative standalone selling price method apply. In addition, if the contract consideration includes fixed up-front payments, the retailer should evaluate whether a significant financing component exists.
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  • Fall '17
  • meenakshi

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