Question

Revenue is ordinarily recognized at the point of sale or exchange, when the earnings process is complete and the when the amount of revenue can be objectively measured. For most businesses these tests are met when merchandise sold or services rendered. Like many rules, the revenue recognition principle has exceptions in some unique cases, like long term construction projects, certain farm products or precious stones.

Consider the America Health Fitness Club that sells lifetime memberships for $1,000 each. Lifetime members are entitled to use of the facilities for the remainder of their lives. America's experience and research shows that 70% of lifetime members stop attending and no longer use the facilities after approximately 5 years. Another 20% use the facilities for approximately 3 years, and the remaining 10% continue to visit the health club throughout their lives.

When do you believe a $1,000 receipt from a lifetime member should be recognized as revenue? Justify your answer.

Answer 1

Yes we believe s1000 receipt from lifetime membership should be recognised as reenue. That is why 70% of members use the facility for 5 years and 20% use the facility for 3 years and the 10%of the members visit the health club throughout their lives .so s1000 should be recognised as revenue. And after 5 years 70% of the facilities are free, we will get the additional revenue by giving life membership.