Question

A customer can purchase WI’s wine in the store at the winery and, starting in 2017, through the new website. A customer can become a member of WI’s new wine club. To join the club, a $200 annual fee is paid. In return, the member is shipped one bottle of wine a month. As part of the annual fee, members receive a free subscription to the Wine Digest, which could be purchased on its own. If the member likes the wine, he or she can then order a case through the website at a 10% discount.

To discuss the accounting policies, consequences and journal entries for WI under IFRS.

Answer 1

Accounting Policies:

Revenue recognition accounting principle states membership fees is to be always recognised as an income on the admission of the member in the club.

It is always non-refundable.

Annual subscription fees is to be always recognised as income on receipt basis.

As the name suggest that the member has to make one payment and will receive membership for life.

It can be described as a entrance fees also.

As and when the club will receive the fees a liability will be created on the receipt of the fees and a proportion of the same is transferred by the organisation to the income and expenditure account.

Accountig Treatment:

Usually the membership fees is recorded as an asset.

We need to read the membership agreement if it is written that the membership fees is non refundable then the club will amortize the same.

Journal Entry:

When the club will receive the feel the following entry will be passed:

1.Bank Account Debit $200

To Membership Fees Account Credit $200

As in the current siatuation the fees is received on yearly basis so the same will be credited to membership fees account and the same will be kept under the head of indirect income.

But if the same fees was life membership fees then the same amount would have been credited to membership fees fund and the same would be placed under current liability account.

Membership fees account is a nominal account in nature here.

2.Member Account Debit

To Wine Account Credit

Consequences::

If the customer will purchse the same through website the bottle of wine may charge him very expensive as compared to if he or she becomes a member.

If becomes a member then by only paying $ 200 he or she will get bottle of wine every month along with the wine digest that is to be purchased by paying out of pocket expense if not a member.

Therefore it os better to become a member to enjoy the benefits.