Purchase rebates: split the saving between sold stock and inventory

Establish what the supplier is paying for

IAS 2 paragraph 11 deducts trade discounts, rebates and similar items when measuring inventory purchase cost. Paragraph 34 then recognises the carrying amount of stock as expense when the related goods are sold. Together, these requirements put the rebate against the units it relates to, including units that remain in inventory.

This article uses UK-adopted full IFRS for a 2026 annual period, without early adoption of IFRS 18. It concerns ordinary goods bought for resale. It does not determine an FRS 102 policy or a tax treatment.

The worked rebate is fixed, supplier-confirmed and unconditionally earned by the reporting date. It relates solely and evenly to this batch's purchase price. A forecast volume target that the buyer has not yet met needs a different assessment. Paragraph 11 does not itself provide a universal probability threshold for accruing every future conditional rebate.

Also read the agreement for a separate service. If the supplier is paying for marketing or another service, do not assume the entire payment is a reduction in inventory cost. A credit note's label cannot settle what the payment buys.

Allocate the earned rebate to the batch

All amounts and quantities below are hypothetical and exclude VAT and other taxes. The business buys 1,000 identical units for £20 each, then sells 700. There is no opening stock, freight, return, financing or net realisable value shortfall. The records initially show £14,000 of cost of sales and £6,000 of closing inventory.

Before the reporting date, the business earns a confirmed 10% rebate of £2,000 on those purchases. That is £2 per unit, reducing each unit's purchase cost to £18. The 700 sold units therefore receive £1,400 of the reduction. The remaining 300 units receive £600.

The revised amounts reconcile to the net purchase cost. Cost of sales is £12,600 and closing inventory is £5,400. Together they equal £18,000, the original £20,000 cost less the £2,000 rebate.

Record the receivable without moving cash early

For these facts, the adjusting entry is Dr rebate receivable £2,000; Cr cost of sales £1,400; Cr inventory £600. The receivable records the earned amount due from the supplier. It is separate from the stock balance.

Cash arrives later. On receipt, record Dr bank £2,000; Cr rebate receivable £2,000. Neither entry assumes a legal right to offset the rebate against an outstanding supplier invoice. The original purchase payable or payment remains as recorded unless the settlement arrangements support a separate change.

Crediting the full £2,000 to cost of sales would overstate current profit and inventory by £600. Putting the whole reduction against inventory would instead leave inventory £1,400 too low and cost of sales £1,400 too high. The quantity split explains both errors.

The lower-of-cost-and-net-realisable-value test still applies after the cost adjustment. A purchase rebate does not prove that the revised carrying amount is recoverable through sale.

Keep the entitlement and quantity evidence together

A useful close record links the supplier agreement, eligible purchases and reporting-date confirmation to the quantities sold and still held. Show the revised unit cost and reconcile the journal to the total earned rebate. This lets a reviewer follow the saving into both margin and stock.

Before reusing the calculation next period, check the actual terms. A rebate covering several products, an unsettled entitlement or a payment for services needs an allocation and recognition assessment supported by those facts. Start with what has been earned and what purchases it changes, then decide where the reduction belongs.