Bellarine Ltd is publisher of Mode magazine and its customers usually sign a three-year subscription with an advance payment of $500.Mode magazine has 12 issues in a year.What is the appropriate accounting treatment for this sale on the date of signing that is in accordance with AASB 118 "Revenue"?
A) Recognise revenue in full as this is an immaterial amount;
B) Recognise as a provision;
C) Recognise as unearned revenue;
D) Disclose in the notes as a contingent item;
E) E: None of the given answers

Question

Quizplus · Accepted Answer

According to AASB 118, revenue should be recognised when it is probable that economic benefits associated with the transaction will flow to the entity and the amount of revenue can be reliably measured. In this case, as the customer has made an advance payment for a subscription, the economic benefits will flow to the entity over the next three years in the form of the magazine issues. Hence, this should be recognized as unearned revenue until the magazine issues are delivered.

Bellarine Ltd Is Publisher of Mode Magazine and Its Customers