Page 524 - Large Business IRS Training Guides

Topic 606

Advanced Payments - Example 52

• A retailer with a customer loyalty program will

allocate the price between the goods sold and the

loyalty points, both of which are deemed to be

performance obligations.

• $100,000 sale of goods with loyalty points:

• Revenue of $91,300 to be reported offset by cost

of goods sold.

• Liability (deferred revenue) of $8,700 reflecting

the obligation to perform (a performance

obligation) upon redemption of those points.

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