COVID-19: How to account for compensation granted for non-performed services?

COVID-19: How to account for compensation

The accounting for a compensation offered depends on the acceptance by the customer. Judgement may be required if a legal obligation arises as a result of non-acceptance.

Fred Versteeg

Partner Department of Professional Practice

KPMG Nederland


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What’s the issue?

Due to the outbreak of COVID-19, companies may not be able to provide their services as sold to their customers, e.g. travel agents, airlines, gyms, theatres or cinemas. One of the many measures companies take is provide their customers with so-called vouchers as compensation. The question is how to account for compensation for non-performed services provided to the customer?

Getting into more detail

Generally, revenue should be recognised for services by reference to the stage of completion of the services provided. Normally, if no services are provided in the period, no revenue is recognised.

Compensation accepted by the customer

If a voucher entitles to catch up on the missed service, revenue is deferred and only recognised in the period in which the services are provided. As the voucher is compensation for a service that the company provides in the normal course of business and not an additional service or good, the consideration already received for the good or service is allocated to the period when the voucher is redeemed.


The gym contribution is EUR 600 for the calendar year 2020, which is paid upfront. Due to the coronavirus, the gym is closed the entire second quarter of 2020. The gym offers its clients a voucher which they can use, at no extra charges, in the first quarter of 2021.

The gym will not recognise revenue in the second quarter of 2020 and defer EUR 150 of the contribution to the first quarter of 2021, i.e. when the services are provided.

Incremental costs

A company may incur incremental costs in providing the postponed services, e.g. additional rent of a location. As these costs would be part of the normal operating activities and are linked to the service provided at that time a provision will generally not be recognised.

Compensation not accepted by the customer

In normal situations, if a company cannot deliver on the agreed services, the contractual terms and conditions and local law will arrange what the rights and obligations are for the company and its customer. Generally, a customer is entitled to a refund of the payments made and at that moment the company would recognise a refund liability.

However, there may be circumstances where the right to a refund due to the crisis as a consequence of the outbreak of COVID-19 would be deemed unreasonable. For example, if this would be considered a force majeure (‘overmacht’), even if not defined in the contract. As a consequence a customer may not be entitled to a refund (in whole or partly). 

Careful analysis of the facts and circumstances will be required and the company may need legal advice to determine its position. Depending on the outcome of this analysis, the deferred income may be released in the profit and loss account and no further obligation exists.  

Actions for management to take now

  • Recognise revenue when services are rendered, also when the service provided is postponed.
  • Determine if a legal obligation exists to refund.

© 2021 KPMG N.V., een Nederlandse naamloze vennootschap en lid van de wereldwijde KPMG-organisatie van onafhankelijke ondernemingen gelieerd aan KPMG International Limited, een Engelse vennootschap “limited by guarantee”. Alle rechten voorbehouden.

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