IFRIC 13
Withdrawn
Customer Loyalty Programmes
Addresses accounting for customer loyalty award credits, requiring them to be treated as a separately identifiable component of a sale and allocated consideration based on relative fair value.
Withdrawn Standard
IFRIC 13 pioneered the treatment of loyalty award credits as a separate component of a sale, allocating consideration between the initial sale and the award credits based on relative fair value – a multi-element deferred revenue approach that directly foreshadowed IFRS 15's own performance obligation model. This poster is retained for historical/comparative reference.
This poster is retained for historical and comparative reference. Entities operating loyalty programmes must apply IFRS 15's performance obligation model.
Current Standard
IFRS 15 Revenue from Contracts with Customers 1
Conceptual Framework Linkage (Historical)
Why loyalty credits are revenue, not marketing expense
IFRIC 13 applies the Conceptual Framework's definition of a good or service and the entity's promise to transfer a good or service to a customer. Loyalty award credits are NOT a promotional expense – they represent a FUTURE right that the customer acquires at the point of sale, requiring the entity to defer part of the initial sale proceeds until that right is fulfilled.
THE CORE INSIGHT
The customer pays for the initial goods AND the future award right at the point of sale The entity has an OBLIGATION to transfer goods/services when credits are redeemed That obligation has a separate fair value that must be determined at the outset
Deferred revenue as a faithful representation
Treating loyalty credits as a separately identifiable component of a sale ensures revenue is recognised only when (or as) the entity satisfies its performance obligations. Deferring part of the initial consideration reflects that the entity has NOT yet fulfilled its promise to provide the future award – matching recognition with satisfaction.
This approach was the direct forerunner to the performance obligation allocation logic later codified in IFRS 15 – the Conceptual Framework underpinning IFRIC 13's reasoning remains fully consistent with IFRS 15's multi-element approach.
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Scope & Definitions (Historical)
What IFRIC 13 covered
IFRIC 13 addressed accounting for CREDIT-BASED loyalty programmes operated by an entity, where customers accumulate award credits through purchases and can redeem those credits for FREE or DISCOUNTED goods or services. The interpretation applies whether the entity operates the programme itself or through a THIRD-PARTY operator.
TYPICAL FACT PATTERNS
Supermarket loyalty cards that accumulate points redeemable for groceries Airline frequent-flyer programmes where miles redeem for flights Hotel chain points programmes redeemable for free nights Petrol-station loyalty schemes offering fuel discounts or goods
Key definitions (historical)
Award credit
A right granted to a customer as part of a loyalty programme, to receive a free or discounted good or service in the future.
Relative fair value
The proportion of the total transaction price allocated to the award credits, based on their stand-alone selling prices relative to the stand-alone selling prices of all goods/services promised.
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Award Credits as a Separately Identifiable Component (Historical)
The separately identifiable requirement
RequirementIFRIC 13's guidance
Stand-alone selling priceThe award credit must have a stand-alone selling price that can be reliably estimated – even if the credit is never sold separately
Individually significantThe credit must represent a material separately identifiable deliverable, not an incidental part of the transaction
Economic substanceThe arrangement must, in substance, give the customer a right to future goods/services in exchange for the credit
⚠️ If the award credit is NOT separately identifiable, the entire transaction price is recognised when the initial goods/services are delivered, and the future award costs are recognised as incurred – a materially different outcome.
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Allocating Consideration – Relative Fair Value (Historical)
The allocation mechanics
Where the award credit IS separately identifiable, the total transaction price (the amount paid by the customer for the initial purchase) is ALLOCATED between the initial goods/services and the award credits based on their RELATIVE FAIR VALUES. This allocation is performed ONCE at the point of sale – the resulting split is the revenue recognised immediately and the deferred revenue recognised later.
ALLOCATION FORMULA
Deferred revenue = Transaction price × (Stand-alone price of award credits ÷ Stand-alone price of initial goods + award credits)
Worked example – allocating transaction price
Example: Supermarket loyalty programme
A customer spends £100 on groceries and earns 500 loyalty points. Each point has a stand-alone value of £0.05 (redeemable for £25 of future goods). The stand-alone selling price of the groceries is £100.
Total stand-alone price = £100 + £25 = £125
Deferred revenue = £100 × (£25 ÷ £125) = £20
Revenue recognised immediately = £100 - £20 = £80
Deferred revenue = £100 × (£25 ÷ £125) = £20
Revenue recognised immediately = £100 - £20 = £80
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Recognising Revenue on Award Redemption (Historical)
When the deferred revenue is released
Revenue from the deferred portion is recognised ONLY when the award credits are REDEEMED by the customer – at which point the entity satisfies its performance obligation. The amount recognised equals the portion of the deferred revenue RELATING to the credits actually redeemed.
KEY PRINCIPLES
Deferred revenue is NOT recognised when credits expire – only upon actual redemption If the fair value of the redeemed goods differs from the originally estimated stand-alone price, the difference is recognised as a cost of sales adjustment Breakage (unredeemed credits) is recognised as revenue only when the chance of redemption becomes remote – NOT prospectively at sale
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Third-Party Loyalty Programme Operators (Historical)
The third-party operator's position
When a THIRD PARTY (not the entity selling the goods) operates the loyalty programme, the entity selling the goods must determine whether the credits represent a separate component of ITS sale, or whether the third-party operator is the party responsible for satisfying the performance obligation. This affects whether the entity allocates part of the transaction price to the credits, or whether the entire amount is revenue with the third-party cost recognised as an expense.
Practical decision tree
ScenarioAccounting outcome
Entity operates the programmeAllocate part of transaction price to award credits; defer and recognise on redemption
Third party operates programme; entity pays per credit earnedRecognise entire transaction price as revenue; recognise cost of credits when incurred
Entity pays fixed fee regardless of redemptionsRecognise fixed fee as expense when earned by third party
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How This Guidance Became Part of IFRS 15
A seamless transition to IFRS 15's performance obligation model
When the IASB developed IFRS 15, it explicitly recognised that IFRIC 13's multi-element allocation approach was conceptually correct and operationally workable. Rather than reinventing loyalty programme accounting, IFRS 15 absorbed IFRIC 13's reasoning into its own performance obligation identification and allocation framework – loyalty credits became simply a specific type of performance obligation with a stand-alone selling price.
IFRS 15's Revenue Implementation Guidance specifically cites loyalty programmes as a common example of a separate performance obligation. Entities applying IFRS 15 follow the same allocation logic IFRIC 13 established, but within the broader and more rigorous IFRS 15 contract-level framework.
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Common Application Sectors
Industries where loyalty programmes are most prevalent
SectorTypical programme structureIFRIC 13 relevance
Air travelFrequent-flyer miles earned per flight, redeemable for flights, upgrades, or partner goodsCore example – IFRIC 13 specifically references airline programmes in its basis for conclusions
Retail groceryPoints per pound spent, redeemable for products, fuel, or discountsHigh-volume, low-margin programmes where accurate deferred revenue recognition is material
HospitalityPoints per stay, redeemable for free nights, room upgrades, or experiencesSignificant deferred revenue balances on balance sheets
Financial servicesReward points per card spend, redeemable for travel, cashback, or gift cardsCredit card programmes are among the most complex due to multi-currency redemption options
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Disclosure (Historical)
Historical disclosure requirements under IFRIC 13
Description of the loyalty programme and the goods/services for which credits can be redeemed The method used to determine the stand-alone selling price of the award credits The amount of revenue deferred at the beginning and end of the period The amount of deferred revenue recognised during the period (redemptions) Any breakage recognised as revenue during the period
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Judgments & Estimates (Historical)
Where judgement historically mattered most
SIGNIFICANT JUDGEMENTS
Determining whether award credits are separately identifiable from the initial transaction Estimating stand-alone selling price when no direct market exists for standalone credits Assessing when breakage is remote enough to be recognised as revenue
SIGNIFICANT ESTIMATES
Stand-alone selling price of award credits, especially for programmes with variable redemption options Expected redemption patterns (breakage rate) affecting timing of revenue recognition
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IFRIC 13 vs the Current IFRS 15 Approach
What changed and what did not
FeatureIFRIC 13 (historical)IFRS 15 (current)
Separate componentAward credits treated as separately identifiable componentAward credits treated as a distinct performance obligation
Allocation methodRelative fair value based on stand-alone selling pricesRelative transaction price allocation based on stand-alone selling prices
Revenue recognition timingOn redemption of creditsAs (or when) the performance obligation is satisfied
Third-party programmesEntity pays per credit: entire price is revenueSame conclusion – entity accounts for the initial sale only
WithdrawnYes – 2016N/A
IFRS 15's Revenue Implementation Guidance specifically cites loyalty programmes as a common example of a distinct performance obligation – the conceptual logic is identical to IFRIC 13, just embedded within a broader, more rigorous framework.
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Statement Mapping (Historical)
Where IFRIC 13 items historically appeared
ItemStatement(s) affectedNotes
Revenue from initial sale (allocated portion)P&LRecognised at the point of sale
Deferred revenue liability for award creditsBalance SheetCarried as contract liability until redemption
Revenue recognised on credit redemptionP&LReleased from deferred revenue as credits are redeemed
Cost of goods sold on redemptionP&LRecognised when redeemed goods/services are provided
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Related Standards
Cross-reference map
StandardConnection
IFRS 15The current successor standard that absorbed IFRIC 13's multi-element logic
IAS 18The predecessor revenue standard IFRIC 13 originally supplemented
Quick-reference glossary
Breakage
The portion of award credits expected never to be redeemed; recognised as revenue only when the chance of redemption becomes remote.
Deferred revenue
Revenue allocated to award credits at the point of sale, deferred until the credits are redeemed or expire.
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Glossary
Award credit
A right granted to a customer as part of a loyalty programme, to receive a free or discounted good or service in the future.
Relative fair value
The proportion of the total transaction price allocated to award credits, based on their stand-alone selling prices relative to all promised goods/services.
Separately identifiable component
A good or service promised to a customer that is distinct from other promises in the contract, meeting the criteria of being capable of being distinct and separately identifiable.
Breakage
The expected portion of award credits that will never be redeemed; recognised as revenue only when redemption becomes remote.
Financial statement key
BS Balance sheet
IS Income statement
SE Statement of changes in equity
OCI Other comprehensive income
SCF Statement of cash flows