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Discuss the recognition of the incentive payment

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Monte Carlo Club is an international sports and leisure club that has recently entered the South African market. The club pays large incentives to sales representatives to sign up customers on a two year contract. The member then has to pay the club a monthly fee for the two year period.

  • The company believes that it should capitalize the incentives paid and amortise them over a 10 year period. These amortizations are based on their experience in Europe where customers who join on the two year contract generally remain legal members of the club after the first contract has expired. The expectation that members generally renew their contracts after the expiry of the first contract is based on research performed over the last five years.

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Question 1: Discuss the recognition of the incentive payment with reference to the conceptual framework.

Reference no: EM132652484

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