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BOGOF and Revenue recognition

According to Linkshare on consumer research, adverts placed on the more mainstream social networking sites are unlikely to be effective as direct marketing tools.

The research, which surveyed 2,000 consumers, found just 5% of respondents considered adverts on professional social networks, such as LinkedIn and just 9% of adverts on personal social networking sites, such Facebook helpful in assisting their purchasing decisions on the web.

Vouchers, promotions and special offers were shown to be most effective way to encourage consumers to click on content displayed in banner ads and were also considered the least invasive form of online marketing at 11%. A resounding 59% said they thought that the promotions and offers available online were useful and only 19% of people had never responded to a voucher advert online.

So there has been a race by supermarkets like Tesco and Sainsburys or chains like Argos and Homebase to build their presence online. The marketing is more focussed on providing offers and discounts to the customer both online and in store.

The accounting standards have to be up-to-speed with the changes occurring in the business environment. An unclear standard may have an material affect on the financial statements.

TESCO published their Annual Financial Statements and accounting policies for revenue recognition are:

Revenue consists of sales through retail outlets.

  • Revenue is recorded net of returns, relevant vouchers/offers and valueadded taxes, when the significant risks and rewards of ownership have been transferred to the buyer. Relevant vouchers/offers include: money-off coupons, conditional spend vouchers and offers such as buy one get one free (BOGOF) and 3 for 2.
  • Commission income is recorded based on the terms of the contracts and is recognised when the service is provided.
Clubcard and loyalty initiatives
  • The cost of Clubcard is treated as a cost of sale, with an accrual equal to the estimated fair value of the points issued recognised when the original transaction occurs. On redemption, the cost of redemption is offset against the accrual.
  •  The fair value of the points awarded is determined with reference to the cost of redemption and considers factors such as redemption via Clubcard deals versus money-off in-store and redemption rate. 
  • Computers for Schools and Sport for Schools and Clubs vouchers are issued by Tesco for redemption by participating schools/clubs and are part of our overall Community Plan. The cost of the redemption (i.e. meeting the obligation attached to the vouchers) is treated as a cost rather than as a deduction from sales.
As a management accountant, you should be aware of the ever changing business environment and the accounting standards. I would also request you read the Annual Review of TESCO group as a case study.

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