Accounting treatment - capital item

Accounting treatment - capital item

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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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Euan's picture
By Euan MacLennan
16th Aug 2012 12:27

You tell us

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.

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Replying to Guavaguy:
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By staggerlee
16th Aug 2012 12:36

 

 

Thanks Euan.

Your assumptions are correct, the equipment belongs to the company and the charge applies to all members. The enhancement fee that is collected from members is received on an on-going basis along with their monthly subs and they have an input into what it is spent on.

I guess my question was if the fees collected should be recognized in the I&E at the point they are collected as income, or should they only be taken off the balance sheet as and when expenditure is incurred (in effect matching the depreciation charge)?

 

Lee

 

 

 

 

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Euan's picture
By Euan MacLennan
16th Aug 2012 12:47

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.

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Replying to shaun king:
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By staggerlee
16th Aug 2012 13:51

Makes sense. Thanks Euan

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