I have recently started working for a company that runs a number of health clubs. My question is about the accounting treatment of capital items that have been fully funded using an ‘enhancement fee’ charged to customers.
The current system is a bit of a mess, items are capitalised at cost and expensed over their useful life. Enhancement fee income from members is just credited to the income statement as and when It’s received and there is little budgetary control over funds used/available.
What is the correct accounting treatment of these items?
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What are the terms under which the enhancement fees are charged? Is it a charge to all members or only to those who want the additional items? Do the capital items belong to the company?
If it is a charge to all members and the capital items belong to the company, the existing accounting treatment seems to be correct.
I think ...
... that this is no different to the rail companies being allowed to increase fares by more than the rate of inflation in order to fund enhancements to the trains.
Recognise the fees in the period for which they are collected.