Your document headline

Up to March 31, 20X9, the value of a point had been calculated as a weighted-average of three components.
1. A component reflecting those points which were going to be redeemed with Locond: the value of this component was based on the discounted
incremental cost of the passenger carried (e.g., catering, ticket issue costs, etc.).
2. A component reflecting those points which were going to be redeemed with a partner: the value of the component was based on the billing from
Locond’s partners in the program.
3. A component reflecting those points which were never going to be redeemed and to which no value was attributed.
The weighting of each component was based on Locond’s historic data of how the points had been redeemed in practice.
Locond chose to apply IFRIC 13 as of April 1, 20X9. The main impact for Locond was that the points now had to be measured at their fair value.
Locond retained the same 3 components but changed the method used to measure the component reflecting those points which will be redeemed with
Locond to fair value, the fair value being based on the “average” fare of Locond. The extra cost for fuel is excluded as the client usually pays for this extra
charge.
Required
Discuss the above accounting treatment by Locond.
Solution
The accounting treatment adopted by Locond complies with the requirements of IFRIC 13, specifically, that the points were accounted for at their fair
value.
Paragraph 6 of the IFRIC requires that the consideration allocated to the award credits be measured by reference to their fair value (i.e., the amount for
which the award credits could be sold separately). Paragraph AG 2 clarifies that the fair value of the points should be reduced to take account of the
proportion of awards that are not expected to be redeemed.
AMENDMENT TO IAS 18 ANNUAL IMPROVEMENTS 2009
Determining Whether an Entity Is Acting as a Principal or as an Agent
Paragraph 8 states that “in an agency relationship, the gross inflows of economic benefits include amounts collected on behalf of the principal and which do not
result in increases in equity for the entity. The amounts collected on behalf of the principal are not revenue. Instead, revenue is the amount of commission.”
Determining whether an entity is acting as a principal or an agent depends on facts and circumstances and requires judgment. An entity is acting as a principal when
it has exposure to the significant risks and rewards associated with the sale of goods or the rendering of services. Features that, individually or in combination, may
indicate that an entity is acting as a principal include
1. The entity has the primary responsibility for providing the goods or services desired by the customer or for fulfilling the order, for example by being
responsible for the acceptability of the products or services ordered or purchased by the customer.
2. The entity has inventory risk before or after the customer order, during shipping or on return.
3. The entity has discretion in establishing prices directly or indirectly, such as by providing additional goods or services.
4. The entity has credit risk.
An entity is acting as an agent when it does not have exposure to the significant risks and rewards associated with the sale of goods or the rendering of services. One
feature that may indicate that an entity is acting as an agent is that the amount the entity earns is predetermined, being either a fixed fee per transaction or a stated
percentage of the amount billed to the customer.
The IASB and the FASB are undertaking a joint project to develop a revenue model that would apply to all industries and all types of revenue-generating
transactions. This new standard will replace IAS 11, Construction Contracts, and IAS 18, Revenue. The IASB issued DP Preliminary Views on Revenue Recognition
in Contracts with Customers in December 2008. The IASB issued ED/2010/6 Revenue from Contracts with Customers in June of 2010.
The two fundamental issues highlighted relate to the application of the guidance on “control” and “separation.” As currently described in the ED, constituents
believe the notion of control is not sufficiently clear to allow entities to determine when control has transferred to the customer and therefore when revenue should be
recognized. The second fundamental issue relates to the identification of separate performance obligations within a contract. Many believe the guidance in the ED is
impractical and may not result in useful information.
IFRIC 15, AGREEMENTS FOR THE CONSTRUCTION OF REAL ESTATE
Agreements for the construction of real estate are widespread and may relate to residential, commercial, or industrial developments. Construction often spans more
than one accounting period, it may take place on land the buyer owns or leases before construction begins, and agreements may require progress payments. The