Question

Each response should be about one paragraph long, describing the justification for your decision.

Costco Wholesale sells a yearly Executive Membership on April 1st, and receives $120 in cash from the customer. The contract states that the membership is not refundable, unless the member relocates to an area in which there is not a Costco within 20 miles. Are the revenue recognition criteria met or not met? Why or why not?

Answer 1

Yes in present case revenue recognition criteria is met

In such cases where membership fee is charged from member with the condition that fee will not be refundable the revenue is recognized on the date of receipt of membership fee from the member. As there is condition that membership fee is refundable only in case the member relocates to an area in which there is not a Costco within 20 miles will not effect the recognition of revenue in the books of Costco Wholesale because there is very remote chance of such thing happening and in such case what Costco Wholesale should do is that on the basis of past experience Costco can make provision in books of accounts for such kind of refund to be given to provide for uncertainty.  Only thing is to ensure that best estimates should be made for provision making. And as far the revenue recognition is concerned the criteria are met that it has resulted in economic inflows and exact amount is measurable so there is no questioning about not recognizing the revenue in the books. so Costco Wholesale should recognize $120 on 1st April as revenue as it met the recognition criteria is met.

Hope length of Answer is sufficient if you want it to be more i can do that just quote in comment section i will edit it

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