Of love, promos and more

Cherrylin M. Javier Assurance Partner, PwC Philippines 03 Feb 2017

As time ushers in the love month, many a gentleman starts making arrangements for his significant other to receive something beautiful come Valentine’s Day—the more common being chocolates, roses in the “right” color, something that shines like a diamond in the sky, concert tickets, fancy dinners and whatever else that is beyond the usual.

Here is a short story, which is my way of spreading love this season.

The guy who did not pay

One starry Tuesday evening, Karlo and Steph held hands while lovingly sipping coffee as the last course of their fully packaged early dinner date. Karlo asked for the bill while he prepared another surprise for Steph.

When the bill was presented, Karlo gave the server a coupon that indicated “free dinner for two,” and left.

The server was frantic as he approached the cashier, who simply accepted the coupon, annotated it and took note of its details in a (sort of a) logbook. The coupon, a gift from Karlo’s father, was part of a booklet of membership perks purchased less than 12 months ago, at which time revenue was presumably recognized. While walking away, Karlo discreetly made a note: “(1) Revenue or prepayment? (2) Revenue without cost and vice versa.”

The honest transporter

Karlo, using a transport app and choosing to pay in cash, then ushered Steph into a limousine that would take them to their boat for a romantic firefly watching. After about 45 minutes on the road and helping Steph settle in the receiving area, Karlo picked three P100 bills from his pocket. He gave the bills to the transporter, who smiled and insisted on giving him back P153.50 despite the meter reading P293.00.

The transporter assured Karlo that the transport company would credit his bank account P146.50 based on a promotion advertised under its HALF-FARE code applicable during specific travel times. He was told during an orientation that the same amount would be treated as a promotions expense by his company when credited to the transporter’s account. Karlo scribbled: “Difference between promotions expense and fare discount?”

The diligent sister

After the romantic boat ride, Karlo took Steph home. He then headed to a convenience store that was promoting a “huge sale.” His attention was particularly caught by a specific brand of canned goods neatly placed along a shelf. But he went past it and proceeded to, instead, get items he needed, including a large toothpaste with a free toothbrush, a medium-sized shampoo bottle bundled with a conditioner and marked 50 percent off, a packet of detergent with a coupon for a 10 percent discount on the next purchase, and roast chicken with a free liter of cola. As he queued up to settle his purchases, he saw some items in front of the cash register. He decided to pick up his favorite gum and a pack of AA batteries.

He then whistled his way home where he found KC, his younger sister, preparing for her accounting exam. He handed her his collection of notes and scribbles for the day, including his convenience store experience – “Is the toothbrush free? Is the 50 percent off on the shampoo and conditioner bundle an on-book discount? How would this impact inventory valuation, if at all? How is the future 10 percent discount accounted for when the product containing that coupon is sold? Is the cola free? What does it take to have a particular brand shelved altogether? And lastly, how do stores decide what products to put in front of the cash register?”

In the end, KC slept early enough, confident that she will nail her exam. As for Karlo and Steph, an exchange of text messages was enough before separately tucking themselves to bed.

The true story

Retailers and service providers are creative in nonchalantly pushing products to consumers. Often, the consumers benefit from humongous sale events, driven not only by the change in seasons, but much more by the ever-increasing number of retail industry players and outlets.

Accounting treatment for sales promotions is not necessarily simple. Retailers should be careful to note that each promotional scheme is likely to be treated differently and must identify whether relevant costs or reductions in sales prices are appropriately treated as either sales deflator or cost of goods sold or selling/operating expenses.

An error in accounting treatment of promotional schemes is likely to not only result in reclassification of expenses but also errors on incentives or bonuses that are based on gross sales, net sales, gross margin, or any combination thereof. Given the impact on incentives, it is also possible that cases of fraud originate from accounting for sales promotions. Oh and by the way, you sure would not want to be assessed deficiency taxes as any error in accounting treatment may also impact minimum corporate income tax.

Parting words

Like numerous accounting treatments for sales promotions, LOVE is defined a thousand ways. No matter what the definition is, we must all work together toward caring for each other, like how Karlo cares for Steph and KC. We care for the ones we love and when we truly love, we act with integrity and start believing that love inspires us to make a difference and reimagine the possible.

Che is the Assurance Lead Partner for the Consumer and Industrial Products and Services industry of PwC Philippines. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

Contact us

Cherrylin M.  Javier

Cherrylin M. Javier

Assurance Partner, PwC Philippines

Tel: +63 (2) 459 3010

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