My company offers various promotions to new members. Most of them are of the buy one, get one free nature. The items are substantially the same. In those cases, we divide the consideration by two to get the value of each item. However, we also offer the following two promotions: Buy one item this month for $0, but commit to buying an item next month at the regular price of $25. Buy one item this month for $5, but commit to buying an item next month at $25. In both cases, I think the consideration should be divided by two to determine the value of each item. In essence, the discount on the first item, should be split between the two. Is this the correct way to recognize the revenue per ASC 606?
Applying Value to Discounted Items
Answers
Greetings!
Interpreting your question, in all the three different scenarios of Promotions, it is more likely a bundle sale of two items as the discount is only applicable on one item when you are buying the other item. So, as an accountant, i would treat it as a bundle sale and the sales price and/or discount is applied to the bundle of two units. Thus, the discount on first item should be split between the two unit.
Let me know if i missed on any information or misinterpreted your sales/discount policy.
I hope this helps.
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Accounting