Return rights under the new revenue standard

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Video , PwC US Jul 26, 2017

Returns are a common part of business. Watch Michelle Dion discuss how rights to return are treated under the new revenue standard.


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Hi, I’m Michelle Dion, a Senior Manager in PwC’s National office.

The new revenue standard is effective for many companies in 2018. In this video, I want to share how to account for return rights under the new standard.

Many companies offer their customers a right to return products they purchase. Return privileges can take many forms and could be explicit in the contract or implied. Implied rights can arise from statements or promises made to customers during the sales process, statutory requirements, or a company's customary business practice.

A right of return often entitles a customer to a full or partial refund of the amount paid or a credit against the value of previous or future purchases.

A right of return is not a separate performance obligation under the new standard, but it affects the estimated transaction price for transferred goods. Revenue is only recognized for those goods that are not expected to be returned.

The estimate of expected returns should be calculated in the same way as other variable consideration. The estimate should reflect the amount that the company expects to repay or credit to its customers considering all available information. The transaction price would include amounts subject to return only if it is probable that there will not be a significant reversal of cumulative revenue.

Companies must consider whether there is some minimum amount of revenue that would not be subject to significant reversal if the estimate of returns changes.

A company will then record a refund liability and an asset for its right to recover products.

The refund liability represents the amount of consideration that the company does not expect to be entitled to because it will be refunded to customers. The refund liability is remeasured at each reporting date to reflect changes in the estimate, with a corresponding adjustment to revenue.

The asset represents the entity’s right to receive goods back from the customer. The asset is initially measured at the carrying amount of the goods at the time of sale, less any expected costs to recover the goods and any expected reduction in value. The return asset is presented separately from the refund liability. The amount recorded as an asset should be updated whenever the refund liability changes and for other changes in circumstances that might suggest an impairment of the asset.

For more information on this and other revenue topics, please refer to our Revenue guide available on

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