Question

AF has a frequent flyer program, “Flying Blue,” which allows members to acquire “miles” as they fly on AF or partner airlines that are redeemable for free flights or other benefits. How does AF account for these miles?

a. Does AF report any liability associated with these miles as of December 31, 2015?

b. Although AF’s 2015 annual report was issued prior to the effective date of ASU No. 2014-09, consider whether the manner in which AF accounts for its frequent flier program appears consistent with the revenue recognition guidelines included in the ASU.

Answer 1

Answerto Part 1 of the question :

AF accounts for these miles as and when the benefits are redeemed by the members.

Answer to part (a) :

Yes,the liability in associated with these miles are reported by AF under the head Non current liabilities on the Balance sheet.

Answer to Part (b) :

As per the revenue recognition guidelines included in the ASU and the update no. 2014-09 , it has been stated that revenue should be recognized as or when the reporting organization satisfies a performance obligation by transferring the promised good or service  which is when the customer obtains control of that good or service. The amount of revenue recognized is the amount of allocated performance obligation.

Here AF accounts for its Frequent flier program as and when the benefit is redeemed by the member which is in line with the revenue recognition guidelines included in the ASU.