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A hospital consortium contracted with a private company to collect fees and maintain health facilities that...

A hospital consortium contracted with a private company to collect fees and maintain health facilities that adjoin their property. Users of the health facility can pay cash of R10 for a daily visit or they can purchase a pass. The pass has a magnetic strip that is swiped through the entrance device each time an individual enters the facility. This subtracts daily fee from the pass balance for each day used. The passes are issued for a fee of R365, which are good for 365 days. Refunds are not issued on the pass. Last year R18,650 was collected for daily visits, R438,000 of annual passes were issued, and R206,225 of pass usage was registered on the scanning equipment. How much should the company recognize as revenue for the year? Explain how the revenue recognition rule should be applied in this case.

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Expert Solution

R10 is for daily visitor facility
Pass facility and rights
First time Fee = R365
Available for Only 365 days
Refund is not provided
R18650 on Daily Visit
R 438000 of Annual Passes Issued in Value
R 206225 is services offerred.
Accounting Policy
For Daily Visitor Same is recognised on the same day and booked revenue as they are paid on cash on daily visit purpose.
For Pass Holder As per the Policy, Pass is valid for 365 days , first time issue charge 365R.
Secondly, 1200 Passes are issued during the year. 438000/ 365R = 1200 Paasses
Thirdly, 10R is deducted from per visit from the card
Accordingly, As per Revenue recognition Card issued for R365 same is booked on the basis of services proportion performed / visited
It means that Suppose One person having pass R365 on issue same is booked as Unearned revenue ( Advance Payment)
suppose, in two month 10 visit round done accordingly revenue against such 10 visit is charged as revenue in books. Against the service completion. Balance will remain as unearned revenue.
as there is no refund policy, so at the end of the year balance amount will be booked and charged to Revenue Account.
Above practice is followed because of True and fair view of the accounting principle.

ekkarill92 answered 2 years ago
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