Question

What are the two basic methods used by airlines to calculate earned revenue? Briefly describe each. Cite a section of the FASB ASC to support your answer.

Answer 1

Answer)

The two basic methods used by airlines to calculate earned revenue are:

1)Sales lift match method and 2)the sampling method.

These methods are in accordance with FASB codification 980-606-25-4.These methods can be explained in following way:

1)Sales lift match method:In this method,all sales information are recorded by coupons and to match the usage of all recorded coupons.In this method online coupons issued must be recorded in air traffic liability account and tracked by ticket and coupon number.Here lifted online coupons are matched to recorded coupons and usage amount is added to revenue earned account and deducted from air traffic liability Account.Adujustment like lost tickets,mismatch ticket etc are periodically made to unearned revenue account. Here,offline lifts are added to revenue account directly.

2)Sampling method:Here revenue is recognised on basis of survey of offline and online lifts. Two attributes for which sample of lifted coupons are treated are:

a) In revenue passenger mile attribute,a sample of dollar value of coupon is accumulated and divided by revenue passenger mile flown to produce an average yeild per passenger mile.This yeild is multiplied with total revenue passenger miles to produce total revenue earned.

b) in this method an average fare per passenger is determined from an sample and it is multiplied with total passengers travelled to determine earned revenue.