Question

can anybody tell me how to account for prompt payment discount under ASC606?

Answer 1

I provide an example for the good understanding:

Pharma sells its products to hospitals through a network of distributors at list price. In this example, we assume that Pharma is recognizing revenue upon “sell-in” to the distributor and all sales are to distributors. Pharma has agreements in place which require rebates or other adjustments to the sales price, including: ?A prompt pay discount of 2% if the distributor pays their invoice within 30 days

Pharma should estimate the transaction price using an expected value (probability-weighted estimate) or most likely amount method, whichever is more predictive. ? Pharma might conclude that because the prompt pay discount is binary the most likely amount method is the best method to estimate the variable consideration and record a 2% reserve on total gross revenues