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 $1,100 provides a year of unlimited access to facilities and also entitles the member to receive a voucher redeemable for 30% 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 $1,200, and a one-year enrollment in yoga classes sells for an additional $500. F&S estimates that approximately 50% 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.

	Item Description Performance Obligation? Stand Alone Prices Percentage of Total Stand Alone Prices Yoga discount voucher 0 Facilities access 0 Total stand alone price $0 0% Item Description Percentage of Total Stand Alone Price Total Transaction Price Allocated Contract Price Yoga discount voucher $0 Facilities access $0 Total contract price $0

c. Prepare the journal entry to recognize revenue for the sale of a new membership.

• Record the revenue for the sale of a new membership.

	Transaction General Journal Debit Credit 1

2. Assume F&S offers a “Fit 70” coupon book with 70 prepaid visits over the next year. F&S has learned that Fit 70 purchasers make an average of 60 visits before the coupon book expires. A customer purchases a Fit 70 book by paying $500 in advance, and for any additional visits over 70 during the year after the book is purchased, the customer can pay a $20 visitation fee per visit. F&S typically charges $20 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.

	Item description Performance Obligation? Stand Alone Prices Percentage of Total Stand Alone Prices Fit 70 0 Additional gym visits 0 Total stand alone price $0 0% Item description Percentage of Total Stand Alone Price Total Transaction Price Allocated Contract Price Fit 70 $0 Additional gym visits $0 Total contract price $0

c. Prepare the journal entry to recognize revenue for the sale of a new Fit 70 book.

• Record the revenue for the sale of a new Fit 70 book.

	Transaction General Journal Debit Credit 1

Answer 1

Please see below answer step by step . Below answer mainly depends on

1) Revenue recognition method in case of Discount ( part of variable Consideration ) .

2) how to account discount as a performance obligation , how to use likelywood redemption of voucher , discount and derived of allocation price . Carrying amount determination .JE relates to deferred revenue expenditure etc .

new Membership $		1,100
Yoga classes - Voucher redeemable - 30%
( time period - 1 year)
A new member normally sells $		1,200
One year enrollment in Yoga classes $		500
F& S estimate approx 50 % voucher will be redem
F& S offers discount of		10%
( all one year enrollment )
Number of performance obligation
Unlimited access to facilities & classes ( Gym membership)
Discount voucher redeemable for 30%
on Yoga classes for 1 year
Discount is identified separately and interrelated
to with providing access to fit and Slim faciliies
Therefore the performance obligation
included in the new member deal in Obligation - DISCOUNT
As per new Account standard relates to Revenue recognition :
Goods and service contract - capable to being distinct
Separately identified goods and services
The performance obligation included
on the new member deal is discount allowed relates to Gym
1 year becuase its alone satisfied one of the condtion
that are considered for identification of obligation
Estimated Standalone selling price
One year enrollment in Yoga classes $		500
Yoga classes - Voucher redeemable - 30%		30%
F& S offers discount of		10%
Incremental discount (30%-10%		20%
F&S estimates that approx 50% voucher will be redeemed- Likelyhood		50%
Standalone Price would be		$500*(30%-10%)*50%
Standalone Price would be $ discount voucher provided		50
Allocation of Price
Membership fees *Standalone Selling Price /Selling price + Standalone selling price
($1100*($50/$1200+$ 50))		44.00
Allocation of Price $		44
There after adjustng above amount ( Membership fees
$1100- $44		1,056
There after adjustng above amount $		1,056
JE
Cash		1,100
Unearned revenue - Membership fees			1,056
Unearned revenue - Yog Coupon			44
( record revenue recognition for sale of
new membership
Deferred Revenue ($44/12)		3.67
Service revenue			3.67
( to account the deferred revenue expenditure)
FIT 70 Coupon book with 70 prepaid visit - This is a separate performance obligation
A customer pay $ 500 in advance for FIT 70 prepaid visit
JE
Cash		500
deferred revenue - membership fees			500
Deferred revenue $		500