AIN3701
Assignment 3
DUE 8 August 2025
,Question 2 (a): Identification of Performance Obligations under IFRS 15
Under IFRS 15, the GymStarter 24-month contract includes the following distinct
performance obligations:
1. Access to Gym Facilities
o This obligation provides the customer with access to all gym-related
services, including equipment, group classes, and general fitness support
over a 24-month period.
o This service is considered a continuous performance obligation and
revenue will be recognised over time, as the customer benefits
simultaneously from the services provided.
2. Conditional Incentive Items
o The contract includes additional items the customer may receive if specific
conditions are met:
A branded towel (after attending 8 sessions within the first 8 weeks)
A branded T-shirt (after 16 sessions)
A gym bag (after 24 sessions)
o These items are treated as separate performance obligations, as they
provide added value to the customer and are not incidental to the main
service.
o However, the obligation to deliver these items only arises if the customer
meets the relevant attendance criteria, meaning they are conditional
promises.
Question 2 (b): Journal Entry – 1 January 2025
At the start of the contract, the following accounting entry is recorded:
text
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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 full contract value (R24,000) is allocated between the gym services and the
potential incentive items.
Since the services will be delivered over time and the incentives are conditional,
both amounts are initially recorded as contract liabilities, reflecting deferred
revenue.
Question 2 (c): Journal Entry – 31 January 2025 (No Incentive Milestones
Reached)
1. Receipt of monthly payment:
text
CopyEdit
Dr Bank / Cash R1,000
Cr Contract Asset / Trade Receivable R1,000
2. Revenue recognised for gym services provided in January:
text
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Dr Contract Liability – Gym Services R989.21
Cr Gym Revenue R989.21
Explanation:
A payment of R1,000 is received for the month of January.
The portion of gym service provided during this month is calculated as R23,741 ÷
24 months = R989.21 and is now recognised as revenue.
No incentive-related revenue is recognised because the conditions have not yet
been met.
Assignment 3
DUE 8 August 2025
,Question 2 (a): Identification of Performance Obligations under IFRS 15
Under IFRS 15, the GymStarter 24-month contract includes the following distinct
performance obligations:
1. Access to Gym Facilities
o This obligation provides the customer with access to all gym-related
services, including equipment, group classes, and general fitness support
over a 24-month period.
o This service is considered a continuous performance obligation and
revenue will be recognised over time, as the customer benefits
simultaneously from the services provided.
2. Conditional Incentive Items
o The contract includes additional items the customer may receive if specific
conditions are met:
A branded towel (after attending 8 sessions within the first 8 weeks)
A branded T-shirt (after 16 sessions)
A gym bag (after 24 sessions)
o These items are treated as separate performance obligations, as they
provide added value to the customer and are not incidental to the main
service.
o However, the obligation to deliver these items only arises if the customer
meets the relevant attendance criteria, meaning they are conditional
promises.
Question 2 (b): Journal Entry – 1 January 2025
At the start of the contract, the following accounting entry is recorded:
text
CopyEdit
Dr Contract Asset / Trade Receivable R24,000
Cr Contract Liability – Gym Services R23,741
, Cr Contract Liability – Incentives R259
Explanation:
The full contract value (R24,000) is allocated between the gym services and the
potential incentive items.
Since the services will be delivered over time and the incentives are conditional,
both amounts are initially recorded as contract liabilities, reflecting deferred
revenue.
Question 2 (c): Journal Entry – 31 January 2025 (No Incentive Milestones
Reached)
1. Receipt of monthly payment:
text
CopyEdit
Dr Bank / Cash R1,000
Cr Contract Asset / Trade Receivable R1,000
2. Revenue recognised for gym services provided in January:
text
CopyEdit
Dr Contract Liability – Gym Services R989.21
Cr Gym Revenue R989.21
Explanation:
A payment of R1,000 is received for the month of January.
The portion of gym service provided during this month is calculated as R23,741 ÷
24 months = R989.21 and is now recognised as revenue.
No incentive-related revenue is recognised because the conditions have not yet
been met.
