Sample Resume : Runway Discount Essay

784 Words Mar 5th, 2016 4 Pages
Facts
Runway Discount (Runway) has instituted the “Refer-a-Friend” program in order to increase its customer base. When existing customers refer a new customer to Runway’s website and the new customer purchases Runway merchandise, the existing customer receives a $25 referral credit toward their next purchase. This program does not have any restrictions and is open to all existing Runway customers. Runway believes the $25 referral credit is the fair market value of the cost that would be incurred if Runway used the services of an unrelated third party in order to acquire a new customer. Runway is requesting guidance how the customer referral credit should be accounted for in their books and records. Runway has also advised they will be adopting IFRSs in the near future and are asking what IFRSs guidance Runway should follow.
Issues
Regarding the existing customer referral credit, the following issues need to be addressed:
• How should the $25 referral credit be reported on Runway’s Income Statement?
• When should the $25 referral credit be recorded?
• What entries would be needed to: o Record when the referral credit is earned by an existing customer? o Record redemption of the referral credit by an existing customer with a $100 purchase?
• What IFRS guidance should Runway follow for the existing customer referral credit?
Applicable Rules
FASB ASC Section 605-50 addresses revenue recognition for customer payments and incentives. According to FASB ASC par. 605-50-45-2,…

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