Question

Fit & Slim (F&S) is a health club that offers members various gym services.

Required:
1. Assume F&S offers a deal whereby enrolling in a new membership for $1,300 provides a year of unlimited access to facilities and also entitles the member to receive a voucher redeemable for 20% off yoga classes for one year. The yoga classes are offered to gym members as well as to the general public. A new membership normally sells for $1,470, and a one-year enrollment in yoga classes sells for an additional $750. F&S estimates that approximately 40% of the vouchers will be redeemed. F&S offers a 10% discount on all one-year enrollments in classes as part of its normal promotion strategy.

1. a. & b. Indicate below whether each item is a separate performance obligation. For each separate performance obligation you have indicated, allocate a portion of the contract price.
c. Prepare the journal entry to recognize revenue for the sale of a new membership.

2. Assume F&S offers a “Fit 60” coupon book with 60 prepaid visits over the next year. F&S has learned that Fit 60 purchasers make an average of 50 visits before the coupon book expires. A customer purchases a Fit 60 book by paying $750 in advance, and for any additional visits over 60 during the year after the book is purchased, the customer can pay a $15 visitation fee per visit. F&S typically charges $15 to nonmembers who use the facilities for a single day.

a. & b. Indicate below whether each item is a separate performance obligation. For each separate performance obligation you have indicated, allocate a portion of the contract price.
c. Prepare the journal entry to recognize revenue for the sale of a new Fit 60 book.

Answer 1

Given that

Offer price = $1300

Voucher discount = 20%

New membership = $1470

1 year enrollment in yoga classes = $750

Vouchers reedemed = 40%

Normal discount = 10%

1(a)

Item description	Performance obligation ?	Stand alone price	percentage to total price
Yoga discount voucher	yes	30	2%
Facilities access		1470	98%
Total stand alone price		1500

Yoga discount voucher stand alone price = 750*40%*10% =30$

yoga discount voucher % to total price = 30/1500*100= 2%

Facilities access % to total price = 1470*100/1500 =98%

1(b)

Item description	percentage to total price	Transaction price	Allocated contract price
Yoga voucher	2%	1300	26
Gym membership	98%	1300	1274
Total price		1300	1300

1(c) journal entries to recognize revenue for the sale of a new membership

Particulars	Debit	Credit
Cash	1300
Deferred revenue -Membership fee		1274
Deferred revenue - Yoga coupon		26

2 (a) and(b)

There is only one performance obligation for fit 60 book Deal. The performance obligation in this deal is the right of entry to the f and s for 60 prepaid visit .

The right of entry to the gym is sperate and distinct because it is distinct and seperate   from all other Goods or services in the contract

The price is same as non members , there for the choice of supplimentary visit over and above 60 is not significant . Hence it is not a significat obligation in this deal

since there is only one obligation in this deal, it is not required to assign contract price to option of additional visits

since coupon books comprises of 60 visits we should assign total $900 contract price (60*15)

2(c) journal entry to recognize revenue for the sale of a new Fit 60 book.

Particulars	Debit	Credit
Cash	750
Deferred revenue -Membership fee		750