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A gymnasium signs a new member up for a 12-month period at ₹4,500 per month. The member can cancel without penalty after three months. The contract term for Ind AS 115 purposes is:
ATwelve months — the stated contract duration in the membership agreement
BThree months — the period over which both parties have enforceable rights and obligations
CIndefinite — until the member chooses to terminate the membership
DNine months — the period excluding the cancellable trial window
Answer & Solution
Correct answer: B. Three months — the period over which both parties have enforceable rights and obligations
Ind AS 115 applies only to the contractual period during which both parties have present enforceable rights and obligations. Because the member can walk away after three months without penalty, only those three months are enforceable. The remaining nine months become a customer option that the entity accounts for if and when the member exercises it.
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