Gwen runs a company that provides corporate health and wellness programs. One of her sales people...

Gwen runs a company that provides corporate health and wellness
programs. One of her sales people signed a contract at the
beginning of the quarter for a very large client. It was a bundle
of services to be provided over the next year. The contract was for
$120,000, with equal payments at the beginning of each month
($10,000 per month). The new client is a very high profile and well
known company, so Gwen is very excited. This is the first bundled
contract that the company has sold and the salesperson felt like it
was a great deal. It starts with an intense bootcamp in the first
month for all employees. That will require a lot of work and Gwen
would normally charge $30,000 for the bootcamp. Each month
throughout the contract they will offer an & intensive
weekend& ; of workouts and diet advice. Gwen normally charges
$5,000 for each of these. They also will provide access to their
online program, which has activity and food logs as well as
preprogrammed exercise suggestions and a weekly inspirational
email. Gwen would normally charge a company of this size $15,000
for one year of access to the website. How much revenue should Gwen
recognize at the end of the first quarter (3 months into the deal)?

Expert Solution

Contract With the Company for a Year
Contract term is 10000$ per Month over a period of 12 Months i.e. a Year.

Standalone Services	Standalone Pricing on P.a. Basis		On Monthly Basis	Nature of Services	Recognition Principle
Bootcamp	30000	30000	2500	Once in a Month Deal as per the contract	Recognize once Services complete
Intensive Work Ou and Diet Programe	10000	10000	833	Throughtout the Contract	Recognize over the Monthly basis
Weekly Inspirational	15000	15000	1250	Throughtout the Contract	Recognize over the Monthly basis
Balance for other services	0	65000	5417	Assume to be Throughtout the Contract	Hence, Recognize over the Monthly basis
Total	55000	120000	10000


As per the Step Matrix in Revenue from Contracts.
Step 1:	Contract should be therein
Step 2:	Identification of Performance obligation
Step 3:	Determination of Transaction Price
Step 4:	Allocation of TP to Contract
Step 5:	Recognitionof Revenue over completion of Performance obligation .

As above it is well tabled the monthly charges,

Revenue Should be recognised is as Follow
	Monthly	Month Services	Total Value
For Bootcamp :	30000	Only 01 Months	30000
For Intensive worko ut and Diet chart :	833	03 Months	2499
For Weekly Inspirational and Email access:	1250	03 Months	3750
For Balance Contract:	5417	03 Months	16251
Total to be recognized for Q1	52500

Debtors A/c Dr.	52500
To Revenue from Contracts A/c	52500
( Being services completed recorded)
Bank A/c Dr.	30000
To Debtors A/c	30000
( Being Amount received against services)

ekkarill92 answered 2 years ago

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