Reference no: EM133129832

Question - To attract new members, SFL started a new life-time fitness membership. A member pays a non-refundable initiation fee of $3,000 and subsequent monthly payments of $30 for as long as they continue to be a member. The membership can be cancelled at any time by the member, however the initiation fee is not refunded. Based on industry studies, approximately 50% of the members stop coming to the gym after 1st year and the remaining 50% stop coming after 2 years. Revenue for all memberships is recognized when received.

This new plan has been quite successful with 1,150 memberships sold this year; members felt the lifetime plan was more cost effective because the regular membership required an annual fee of $1,000 and $30/month. Shareholders will receive a special dividend this year of 5% because of the increased net income.

Required -

1. Assume the company follows ASPE. Provide an analysis using the CPA Way as illustrated in class: Provide issue, a GAAP supported/ case specific analysis, recommendation, and correcting JE, if any, that is needed. Show all calculations in proper format.

2. Assume the company follows IFRS. Provide an analysis using the CPA Way as illustrated in class: Provide a GAAP supported/ case specific analysis, recommendation, and correcting JE, if any, that is needed. Show all calculations in proper format.

3. Assuming IFRS is used, how would your response under B change if the member was given 2 years to pay the $3,000 and a one-time comprehensive fitness assessment was included in the initiation fee? You DO NOT need to re-do the analysis as you provided in B; simply explain which step(s) in the 5-step process would be affected and why.