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.

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

Five step model is as follows:

Step 1: Identify the contract with customer. In this case, gym membership serves as a

Step 2: Identify performance obligation. In this case, performance obligations are: 1. 12 month membership; 2. Personal training; 3. Free weights

Step 3: Determine transaction price. In this case, the overall transaction price will be 900, i.e. the total consideration received from customers

Step 4: Allocate the transaction price to various performance obligations. In this case, the allcoation will be done based on the standalone selling price.

Step 5: Recognise revenue as and when obligations are complete, either over a period of time, or at a point in time, depending on contractual terms.

Analysis of step 4 and 5 is provided in the table below:

Based on the above table, revenue recognised:

For July will be 1 month gym membership fee and 1 month personal training fee:

For August, it will be 1 month gym membership fee, 1 month personal training fee and amount for delivery of weights

Journals for both months are as follows:

Please comment for any clarification