AIN3701
Assignment 3
DUE 8 August 2025
,Question 2 (a): Identifying Performance Obligations under IFRS 15
According to IFRS 15, the GymStarter contract includes multiple distinct performance
obligations over the 24-month term:
1. Access to Gym Services
This obligation grants customers ongoing access to gym facilities, which includes
the use of equipment, participation in group classes, and general fitness
assistance throughout the 24-month membership.
Since the customer benefits from these services continuously as they are
delivered, this component is classified as a performance obligation satisfied
over time. Therefore, revenue related to gym access is recognized monthly as
the service is rendered.
2. Conditional Incentive Rewards
The contract also includes certain branded items that the customer may earn if
they fulfill specific attendance goals:
o Branded towel (after attending 8 sessions in 8 weeks)
o Branded T-shirt (after 16 sessions)
o Gym bag (after 24 sessions)
These rewards are considered separate performance obligations under IFRS
15 because they are not incidental and provide additional value to the customer.
However, these obligations are conditional—they only arise if the customer
meets the required attendance milestones. Thus, they are considered
contingent promises that will be accounted for when the performance
conditions are fulfilled.
, Question 2 (b): Journal Entry on 1 January 2025 – Contract Commencement
When the customer signs up for the contract on 1 January 2025, the following
accounting entry is made to reflect the allocation of the total contract price:
Journal Entry:
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Dr Contract Asset / Trade Receivable R24,000
Cr Contract Liability – Gym Services R23,741
Cr Contract Liability – Incentives R259
Explanation:
The total contract amount of R24,000 is assigned to the identified performance
obligations: gym services and the conditional incentives.
Since both the gym service and incentives have not yet been fulfilled, the full
value is initially recorded as a contract liability, indicating deferred revenue.
The amount allocated to gym services (R23,741) will be recognized monthly
over 24 months, while the portion for incentives (R259) will only be recognized if
and when the customer meets the conditions for receiving those rewards.
Question 2 (c): Journal Entry on 31 January 2025 – No Incentive Earned Yet
1. Recording Customer’s Payment for January:
plaintext
CopyEdit
Dr Bank / Cash R1,000
Cr Contract Asset / Trade Receivable R1,000
2. Recognizing Revenue for Gym Services Rendered in January:
Assignment 3
DUE 8 August 2025
,Question 2 (a): Identifying Performance Obligations under IFRS 15
According to IFRS 15, the GymStarter contract includes multiple distinct performance
obligations over the 24-month term:
1. Access to Gym Services
This obligation grants customers ongoing access to gym facilities, which includes
the use of equipment, participation in group classes, and general fitness
assistance throughout the 24-month membership.
Since the customer benefits from these services continuously as they are
delivered, this component is classified as a performance obligation satisfied
over time. Therefore, revenue related to gym access is recognized monthly as
the service is rendered.
2. Conditional Incentive Rewards
The contract also includes certain branded items that the customer may earn if
they fulfill specific attendance goals:
o Branded towel (after attending 8 sessions in 8 weeks)
o Branded T-shirt (after 16 sessions)
o Gym bag (after 24 sessions)
These rewards are considered separate performance obligations under IFRS
15 because they are not incidental and provide additional value to the customer.
However, these obligations are conditional—they only arise if the customer
meets the required attendance milestones. Thus, they are considered
contingent promises that will be accounted for when the performance
conditions are fulfilled.
, Question 2 (b): Journal Entry on 1 January 2025 – Contract Commencement
When the customer signs up for the contract on 1 January 2025, the following
accounting entry is made to reflect the allocation of the total contract price:
Journal Entry:
plaintext
CopyEdit
Dr Contract Asset / Trade Receivable R24,000
Cr Contract Liability – Gym Services R23,741
Cr Contract Liability – Incentives R259
Explanation:
The total contract amount of R24,000 is assigned to the identified performance
obligations: gym services and the conditional incentives.
Since both the gym service and incentives have not yet been fulfilled, the full
value is initially recorded as a contract liability, indicating deferred revenue.
The amount allocated to gym services (R23,741) will be recognized monthly
over 24 months, while the portion for incentives (R259) will only be recognized if
and when the customer meets the conditions for receiving those rewards.
Question 2 (c): Journal Entry on 31 January 2025 – No Incentive Earned Yet
1. Recording Customer’s Payment for January:
plaintext
CopyEdit
Dr Bank / Cash R1,000
Cr Contract Asset / Trade Receivable R1,000
2. Recognizing Revenue for Gym Services Rendered in January:
