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AFT provides helicopter tours of the Grand Canyon. Clients pre-book tours on-line and pay the following...

AFT provides helicopter tours of the Grand Canyon. Clients pre-book tours on-line and pay the following fees at the time of booking:

1. a $10 administration fee for processing the booking and potential cancellations,

2. A $20 fee for guaranteeing the reservation and

3. $300 for the helicopter tour itself.

Bookings can be placed as far as one year in advance. If the client cancels the booking more than 2 weeks in advance of the booked tour date, all fees except the administration fee is refundable. If the client cancels the booking within two weeks before the tour date, but before one week of the booked tour date, only the helicopter tour fee is refunded. If client cancels within one week or fails to show up for the scheduled tour, no fees are refunded.

AFT has been in business for several years and can estimate the number of clients that will cancel or not show up for a booked tour. Cost of providing the helicopter tour can also be estimated.

Required:

Discuss the performance obligations AFT has in relation to revenue recognition in the above scenario. When should AFT recognize each of the fees ($10, $20, and $300) as revenue?

Expert Solution

Ans 1 Performance Obligation AFT Has in Relation to the Revenue Recognision:

As AFT company is working into the Service of Holicopter Tours at Grand canyon where they provide various service such as, Pre Booking, Reservation Related Service and Helicoper Tour from which they are generating cashflow in various aspect where it include of the Admin fees,Reservation charges, Tour fees.

If We see the Performance Obligation should be their as company getting Revenue from client basis on their Services.

1.The AFT have their Revenue from Administration charges because of which they are obligied to give service relating to Booking seats and if cancled their would be no Refund.

2. Reservation Service which will help to Book Helicoper Seats before one year also and within Two week AFT have their Revenue through client Cancelling their seat which will be $20 per client.

3. Helpicoper Tour for which they charges $300 per tour which will help to get revenue.

Ans 2 When AFT recognize each of the fees ($10, $20, and $300) as revenue?

In Below Scenario AFT Rcognise as Revenue

1. $10

1) When Customer have enquiry and Process for Booking.

2) If client cancels the booking anytime.

2. $20

1) Client Reserving for Helicopter Tour.

2) client cancels the booking within two weeks before the tour date

3. $300

1) Client Booking for Helicopter Tour.

2) Client Cancel for tour before 1-6 days of tour.

jeff jeffy answered 1 year ago

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