Abu Dhabi Sports Club (ADSC) operates eight health clubs in Abu Dhabi. Members may join ADSC at any time throughout the year. They may use any of the eight clubs, but must reserve court time for racquet sports (tennis, squash, and badminton) and pay a separate fee when making the reservation. This fee is non-refundable if the member does not turn up for his or her session.
Club membership fees are normally due at the beginning of the membership period. However, customers are given the option of paying the membership fee in quarterly instalments (that is, 25% of the annual fee is paid every three months at the end of the quarter). If they take this option, they are charged interest at the annual rate of 15% on any outstanding balance.
As an incentive to new customers, ADSC advertised that any customers who have paid their annual membership and who are not satisfied for any reason can receive a refund of the remaining portion of unused membership fees.
Required:
a) Using the case above define revenue (as explained in IAS 18) and explain the revenue recognition principle.
b) Identify and explain the following criteria for revenue recognition in the above case.
i. Performance
ii. Measurability
iii. Collectability.
c) Using the criteria identified in part (a), explain when revenue should be recognized for each of the following:
i. Membership fees paid at the beginning of the membership period.
ii. Membership fees paid through quarterly instalments.
iii. Court time reservation fees.