Businesses often receive supplier rebates, discounts, or commercial incentives when purchasing fixed assets. Although these adjustments may seem straightforward, many organisations struggle with how to correctly reflect them in their financial statements. The challenge usually arises because such incentives do not fall under the definition of government grants and therefore cannot be accounted for under IAS 20. Instead, the appropriate treatment depends on the substance of the transaction and the applicable IFRS standards.

Understanding the Applicable IFRS Standards

Since supplier rebates are not government grants, IAS 20 does not apply. The accounting treatment is instead guided by:

• IAS 16 for property, plant and equipment

• IFRS 15 when the incentive relates to performance obligations

• IFRS 9 if the rebate has characteristics similar to a financial instrument

Most incentives associated with the acquisition of fixed assets are governed by IAS 16, which emphasises capturing the asset at its cost, inclusive of all directly attributable expenses necessary to bring the asset into use.

Two Common Accounting Approaches

Depending on the nature and conditions of the incentive, businesses typically use one of the following methods:

1. Deduction from the Cost of the Asset

This is the most common and straightforward approach.
If the incentive is directly linked to the acquisition price of the fixed asset, the rebate is treated as a reduction in the asset’s cost. This aligns with IAS 16, which requires the cost of an asset to reflect the actual cash outflow or consideration given.

This method is generally suitable when:

• The rebate is unconditional

• The incentive is offered upfront

• The economic substance is a reduction in purchase price

2. Recognition as Deferred Income

In some cases, incentives are subject to conditions, such as achieving specified purchase volumes, performance milestones, or continued use of the supplier’s products. When the incentive is conditional or linked to future performance, the appropriate treatment is to recognise it as deferred income.

Deferred income is then recognised in profit or loss over the asset’s useful life, matching the benefit received with the related depreciation expense.

This method is appropriate when:

• The incentive is earned only after meeting conditions

• The timing or amount of the rebate depends on future events

• The substance of the incentive represents income rather than a price reduction

Evaluating Substance Over Form

The key principle under IFRS is that the accounting treatment must reflect the economic reality of the transaction. Therefore, an entity must assess:

• Whether the rebate relates to the purchase price or future performance

• Whether conditions exist and how they impact recognition

• Whether the benefit is tied to the asset or to the overall business relationship

Consistency and Disclosure

Once an entity decides on the method that best reflects the substance of the transaction, it must apply that policy consistently to similar arrangements. Transparent disclosure is essential to help stakeholders and auditors understand:

• The nature of the incentive

• The accounting policy applied

• The impact on asset values and income

Clear disclosure ensures IFRS compliance and enhances the reliability of the financial statements.

Conclusion

Supplier rebates and commercial incentives for fixed asset purchases require careful evaluation under IFRS. Since IAS 20 does not apply, businesses must rely on IAS 16 and, where relevant, IFRS 15 or IFRS 9. Whether the incentive is deducted from the asset’s cost or recognised as deferred income depends on the terms and economic substance of the arrangement. By applying the appropriate accounting treatment, maintaining consistency, and ensuring clear disclosure, organisations can present accurate and transparent financial information that supports sound decision making and builds confidence among stakeholders.