RECOGNITION OF REVENUE

This query is : Resolved

YOGESH (Querist)
Follow

16 May 2011 HOW THE INCOME IS RECOGNISED IN THE BOOKS OF THE HOTEL INDUSTRY WHICH HAD THE SCHEME THAT ANYONE WHO STAYS IN HOTEL FOR UPTO 4 DAYS CAN BE GRANTED A STAY OF ONE DAY IN HOTEL FREE WHICH HE CAN AVAIL IT BEFORE TWO YEARS. ONE COSTUMER STAYED FOR FOUR DAYS BUT A FREE DAY IS NOT AVAILED BY HIM DURING THAT YEAR. HOW THE HOTEL COMPANY WILL ACCOUNT FOR ITS INCOME DURING THAT YEAR CONSIDERING AS 9 EITHER FOR 4 OR 5 DAYS ?

CA CS CMA Srinivasan N

CA CS CMA Srinivasan N (Expert)
Follow

16 May 2011 Hi,
In the given situation, prudent way of accounting would be not recognizing revenue for a fifth day as it is provided free of cost for customers staying for four days. The treatment for this situation as per AS-9 would be to recognize revenue for four days and then as per AS29 make a provision for one day's expenses which will include allocation of cost per occupancy. The provision can be reversed based on the availment in future.
Alternatively the fifth day revenue can be recognized and equivalent amount shall be provided for discount/sales promotion as per the scheme.
Hope it clarifies.
Rgds
Srinivasan