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 $1,400 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 $1,455, and a one-year enrollment in
yoga classes sells for an additional $450. 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.
c. Prepare the journal entry to recognize revenue
for the sale of a new membership.
2. Assume F&S offers a “Fit 80” coupon book
with 80 prepaid visits over the next year. F&S has learned that
Fit 80 purchasers make an average of 70 visits before the coupon
book expires. A customer purchases a Fit 80 book by paying $450 in
advance, and for any additional visits over 80 during the year
after the book is purchased, the customer can pay a $15 visitation
fee per visit. F&S typically charges $15 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.
c. Prepare the journal entry to recognize revenue
for the sale of a new Fit 80 book.
1. Offer price = $1400 , voucher discount =30% , New membership = $1,455. , yoga classes = $450 , Voucher redemption = 50% , Normal discount =10%
1(a)
Particulars | performance obligation | Stand alone price | percentage to total price |
Yoga discount voucher | yes |
$450*50%*20%=$45 |
3% |
Facility access | $1,455 | 97% | |
Total price | $1500 |
1(b)
Particulars | Transaction price | Contract price | % to total price |
Yoga discount voucher | $1400 | $1400*3%=$42 | 3% |
Gym membership | $1400 | $1400*97%=$1358 | 97% |
Total price | $1400 |
1(c) Journal entry to recognize revenue for sale of new membership
Particulars | Debit | Credit |
Cash | $1400 | |
Deferred revenue (membership fee) | $1358 | |
Deferred revenue (Yoga coupon) | $42 |
2(a) & (b)
There is only 1 performance obligation in FIT 40 member . This performance obligation is right of entry of F&S for 80 prepaid visits.
Right of entry to gym is distinct and identifiable from other services hence treated as separate. Price doesnot change so choice for supplementary visits is not relevant. Therefore it is not performance obligation.
It was not required to assign contract price to additional visits as there is only 1 performance obligation.
Coupon book consist of 80 visits. Contract price to each visit 80*15 = $1200
2(c) Journal entry to recognize revenue for the sale of a new Fit 80 book.
Particulars | Debit | Credit |
Cash | $450 | |
Deferred revenue (membership fee) | $450 |
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