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In: Business and Management

Submitted By desichick
Words 546
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Upon reviewing Haggerty’s changes to Nero Health and Racquet Club (NHRC), the following need to be considered for each.
1. Membership revenue should be recognized when the membership fee is collected.
Here Baber should use the earnings based approach. For memberships using a prepaid approach, they have not earned the revenue paid at the beginning of each term although they have collected the funds. Recognizing revenue at this point is against financial reporting best practices as there is uncertainty about whether or not the buyer will demand a refund at any given time. It falsely inflates revenue at present and forces the company to declare losses later when refunds are demanded. NHRC should only recognize revenue as it occurs. As a year is a long period to wait to declare revenue, NHRC could declare revenue at the end of what it deems to be a critical event, for example at the end of each month they can recognize 1/12 of the membership fee. For members using the financing option, membership can be recognized as revenue when collected, assuming the payment coincides with the timeframe they are paying for. For example if a member is making monthly payments, and the payments are equal for the year, then their dues can be declared as revenue as they are received because they are paying for the current month. If this is not the case, then NHRC needs to be careful to track dues and align them to membership services provided to maintain accuracy. Baber should not implement this change.
2. Revenue from the coupon books should be recognized when the books are sold.
Revenue from coupon books can be recognized when the books are sold assuming the books are not refundable. NHRC is not liable for any refunds or loss of coupons, the money is in their hands, and it is up to the customer to redeem the coupons. All NHRC must to is continue to provide aerobics classes. This…...

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