Question

PRACTICAL QUESTION

Big Biceps Ltd (BB) is a company that operates a number of fitness centers (‘gyms’). The company is currently offering potential customers a new gym membership. The terms of the new membership are: A For an up-front cash payment of $900, new members will have full access to all training facilities at a nominated gym for a 12-month period. The $900 fee is non-refundable.

A 12-month gym membership alone is normally priced at $960.

B In addition, for the first three months of their membership, new members will receive ‘free’ access once a week to a half-hour individual session with a personal trainer. Three months of such personal training sessions would normally cost member $420.

C As an added incentive, all new members who attend all of their sessions with the personal trainer in the first two months will receive a ‘free’ set of training weights at the end of that two-month period. BB’s prior experience with such offers is that all members receive the ‘bonus’ items at the end of the qualifying period. The training weights normally have a retail price of $80.

QUESTIONS

Required

1)	Apply the five-step model in AASB 15 to the above facts to decide when the revenue will be recognised by BB for the above gym membership offer. Please provide a table to show the allocation of the transaction price. Round percentages to zero decimal places.
2)	Assume D. Friday takes up the new gym membership offer from BB. She pays the membership fee on 1 July 2019. Further assume that BB has adopted AASB 15 and prepares monthly financial statements. What general journal entry(ies) should BB recognise on (a) July 2019 and (b) 31 August 2019?

Answer 1

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Part 1: Five Steps Model in AASB 15:
Step 1:	Identify Contract with Customer	For an upfront fee of $900, will have full access to all training.
Step 2:	Identify Separate performance obligation	a. 12 month gym membership
		b. First three month, once in a week personal trainer service
		c. free training weights at the end of two months
Step 3:	Determine transaction price	Transaction Price is $900
Step 4:	Allocate transaction price
Service	Standalone Price	% of total Stand Alone A	Transaction Price B	Allocation A*B
Gym Membership	$                                                                                                                    960	0.66	$                            900	$                   592
Personal Trainer	$                                                                                                                    420	0.29	$                            900	$                   259
Weights	$                                                                                                                       80	0.05	$                            900	$                      49
Total	$                                                                                                                 1,460			$                   900
Step 5:	Recognize revenue when a performance obligation satisfied
Service	Revenue Recognition
Gym Membership	over 12 months (592/12)
Personal Trainer	over 3 months (259/3)
Weights	at the end of two months ($49)
Part 2:
Date	Account	Debit	Credit
Jul 1	Cash	$                                                                                                                      900
Jul 1	Unearned Service Revenue -Gym		$                            592
Jul 1	Unearned Service Revenue -Personal Trainer		$                            259
Jul 1	Unearned Sales Revenue		$                               49
Jul 31	Unearned Service Revenue -Gym 592/12	$                                                                                                                         49
Jul 31	Service Revenue-Gym		$                               49
Jul 31	Unearned Service Revenue -Personal Trainer 259/3	$                                                                                                                         86
Jul 31	Service Revenue-Gym		$                               86
Aug 31	Unearned Service Revenue -Gym 592/12	$                                                                                                                         49
Aug 31	Service Revenue-Gym		$                               49
Aug 31	Unearned Service Revenue -Personal Trainer 259/3	$                                                                                                                         86
Aug 31	Service Revenue-Gym		$                               86
Aug 31	Unearned Sales Revenue	$                                                                                                                         49
Aug 31	Sales Revenue		$                               49