Question

The Rink offers an annual $200 memberships that entitle members to unlimited use of ice-skating facilities and locker rooms. Each new membership also entitles the member to receive ten "35% off a $5 meal" coupons that are redeemable at the Rink’s snack bar. The Rink estimates that approximately 80% of the coupons will be redeemed, and that, if the coupons weren’t redeemed, $5 meals still would be discounted by 5% because of ongoing promotions.
Calculate how much of the transaction price should be allocated to meals. Round your answer to 2 decimal place.

Answer 1

Answer:

$5.83

Explanation:

The customer would not receive except (a 20% discount rather than a 5% discount), the discount voucher also is a different performance obligation. To give the contract price to the performance obligation, firstly, we should consider that the Rink would offer a 5% discount on $5 meals that will be sold to all its customers. Therefore, the 20% discount gives a customer with an incremental value of 15%, that's is (20% - 5%). Therefore, to calculate the stand-alone selling price of the meal coupons we have

$6 = 10 coupons x $5 base price of meal x 15% savings x 80%redeemed

= $6

As we have it, the stand-alone selling price of the annual membership fee is given $200, therefore the Rink would allocate we be calculated as follow

= $200 × [6 ÷ (6 + 200)]}

= $5.83

Which we have as the transaction price to the discount coupon.