Companies in the retail sector acts as a mediator between producer and consumer. In order to attract customer, they offer right to return the product, gift certificates, option to place order online and incentive on subsequent purchases. The retail company earns revenue in form of percentage of profit or in form of slotting fees.
To apply revenue recognition criteria, the goods and service provided by companies in retail sector is broadly classified into:
- Right to Return: Revenue is recognized on delivery of goods and provision must be made for estimated value of return based on historic trend. In case of new product, where the retailer cannot estimate the future returns, then revenue is recognized at the termination of the return period
- Gift Certificates: No revenue is recognized when gift voucher is sold. When the holder redeems the certificates. Unredeemed certificates at the date when certificate expires
- Online Orders: On delivery of the goods, subject to right to return the products
- Coupons for subsequent purchase: Treat it as discount against revenue when coupons are redeemed
- Slotting fees: Companies in retail sector provides visibility to product of manufacturer. They provide them space for display in its premises for definite period of time. Retailer companies earns fee for providing this service.
Accounting Policies (Extract)
J Sainsbury plc, (LON:SBRY), Consolidated Financial Statement March 17, 2012
Revenue consists of sales through retail outlets and excludes Value Added Tax. Sales through retail outlets are shown net of returns, the cost of Nectar reward points issued and redeemed, colleague discounts, vouchers and sales made on an agency basis. Commission income is recognized in revenue based on the terms of the contract.
Revenue is recognized when the significant risks and rewards of goods and services have been passed to the buyer and it can be measured reliably.
The cost of Nectar points is treated as a deduction from sales and part of the fair value of the consideration received is deferred and subsequently recognized over the period that the awards are redeemed. The fair value of the points awarded is determined with reference to the fair value to the customer.