Treatment of discount given on sale of gift vouchers
This query is : Resolved
01 September 2016
Dear Experts
If a retailer sale the gift voucher for Rs. 2000/- and give discount for Rs. 500/- on gift voucher sale. Now the customer buy the product of the company for Rs. 2000/- and make the payment through above voucher. Now which one of following is correct. 1) Sale of Product 2000 - Less gift voucher discount Rs. 500/- = Net Product sale Rs. 1500/- or 2) Sale be Rs. 2000/- and Rs. 500/- Discount of Gift Voucher be expense out.
IS ANY EXPERT ABLE TO REPLY TO MY QUERY????????
If a retailer sale the gift voucher for Rs. 2000/- and give discount for Rs. 500/- on gift voucher sale. Now the customer buy the product of the company for Rs. 2000/- and make the payment through above voucher. Now which one of following is correct. 1) Sale of Product 2000 - Less gift voucher discount Rs. 500/- = Net Product sale Rs. 1500/- or 2) Sale be Rs. 2000/- and Rs. 500/- Discount of Gift Voucher be expense out.
IS ANY EXPERT ABLE TO REPLY TO MY QUERY????????
12 September 2016
Dear Experts
Requested to reply to my query.
Requested to reply to my query.
02 August 2025
Great question! Here’s how the treatment generally works for **discount given on sale of gift vouchers**:
---
### Scenario Recap:
* Gift voucher sold for Rs. 2000.
* Rs. 500 discount given on sale of the voucher.
* Customer redeems voucher to buy product worth Rs. 2000.
---
### Accounting/Treatment Options:
#### 1) **Treat Sale of Product net of discount (Rs. 1500)**
* Product Sale = Rs. 2000
* Less Discount on Voucher = Rs. 500
* Net Sale recorded = Rs. 1500
* The Rs. 500 discount is effectively reducing the revenue from the product sale.
**This method treats the discount as a reduction in revenue.**
---
#### 2) **Treat Sale as Rs. 2000 and Discount Rs. 500 as an expense**
* Product Sale = Rs. 2000
* Discount on voucher Rs. 500 recorded separately as a **marketing/sales expense** or "Discount allowed" expense.
**This method shows gross revenue from sale and separately recognizes discount as expense.**
---
### Which one is correct?
* **Generally accepted practice and IFRS/GAAP principles favor showing sales net of discounts.**
* So, option **(1) Sale of product = Rs. 2000 less Rs. 500 discount = Rs. 1500 net sale** is preferable.
* This avoids inflating revenue and then separately showing discount expense, giving a clearer view of actual revenue.
---
### Why?
* The discount is a reduction of the transaction price.
* Revenue is recognized at the amount the entity expects to receive.
* Showing gross sales + discount expense can overstate revenue.
---
### Summary:
* Record product sale at Rs. 1500 (net of voucher discount).
* The Rs. 500 discount reduces revenue, **not recorded as an expense separately**.
---
If you want, I can help draft the journal entries for this treatment. Want me to?
---
### Scenario Recap:
* Gift voucher sold for Rs. 2000.
* Rs. 500 discount given on sale of the voucher.
* Customer redeems voucher to buy product worth Rs. 2000.
---
### Accounting/Treatment Options:
#### 1) **Treat Sale of Product net of discount (Rs. 1500)**
* Product Sale = Rs. 2000
* Less Discount on Voucher = Rs. 500
* Net Sale recorded = Rs. 1500
* The Rs. 500 discount is effectively reducing the revenue from the product sale.
**This method treats the discount as a reduction in revenue.**
---
#### 2) **Treat Sale as Rs. 2000 and Discount Rs. 500 as an expense**
* Product Sale = Rs. 2000
* Discount on voucher Rs. 500 recorded separately as a **marketing/sales expense** or "Discount allowed" expense.
**This method shows gross revenue from sale and separately recognizes discount as expense.**
---
### Which one is correct?
* **Generally accepted practice and IFRS/GAAP principles favor showing sales net of discounts.**
* So, option **(1) Sale of product = Rs. 2000 less Rs. 500 discount = Rs. 1500 net sale** is preferable.
* This avoids inflating revenue and then separately showing discount expense, giving a clearer view of actual revenue.
---
### Why?
* The discount is a reduction of the transaction price.
* Revenue is recognized at the amount the entity expects to receive.
* Showing gross sales + discount expense can overstate revenue.
---
### Summary:
* Record product sale at Rs. 1500 (net of voucher discount).
* The Rs. 500 discount reduces revenue, **not recorded as an expense separately**.
---
If you want, I can help draft the journal entries for this treatment. Want me to?
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