QUESTION 48 Illustration 48: Measuring progress on straight line basis An entity, an owner and manager of health clubs, enters into a contract with a customer for one year of access to any of its health clubs. The customer has unlimited use of the health clubs and promises to pay CU100 per month. The entity’s promise to the customer is to provide a service of making the health clubs available for the customer to use as and when the customer wishes. Evaluate if contract will qualify for satisfaction of performance obligation over a period of time. If yes, how should an entity measure its progress of service provided

Solution

Based on the criteria provided in IFRS 15, the performance obligation of the health club is satisfied over time. Here's why:

  1. The customer simultaneously receives and consumes the benefits provided by the entity’s performance as the entity performs. The access to the health club is provided over the contract period, and the customer can avail the benefit anytime within this period.

Given that the performance obligation is satisfied over time, the entity should measure its progress towards complete satisfaction of the performance obligation.

In this particular case, a straight-line method would be appropriate to measure the progress, as the customer has the right to use the facilities throughout the period in an even manner, assuming there are no specific clauses in the contract that would significantly change the customer's rights or the entity's performance over the contract period.

Therefore, the health club should recognize CU100 each month as revenue, as the customer has an equal right to access the club’s facilities throughout each month. This represents a straight-line recognition of revenue over the duration of the contract.

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