Home › CA Final › financialreporting › performanceobligations › An entity negotiates with airlines, agrees to BU…
An entity negotiates with airlines, agrees to BUY a specified number of tickets at reduced rates (paying for unsold ones), DETERMINES the resale price, and bears the loss risk on unsold tickets. The airline remains responsible for service complaints. Under Ind AS 115, the entity is:
AAn agent because the airline ultimately delivers the flight service
BBoth, depending on whether a service complaint is filed by the customer
CA principal — it controls the tickets before transfer; it has inventory risk and price-setting discretion
DNeither principal nor agent — Ind AS 115 does not cover ticket resale
Answer & Solution
Correct answer: C. A principal — it controls the tickets before transfer; it has inventory risk and price-setting discretion
Principal indicators under para B37: (a) primarily responsible for fulfilment, (b) inventory risk, (c) discretion in setting prices. The entity has (b) and (c) clearly — purchased tickets at risk and sets resale price — and controls the ticket (right to fly) before transfer. Principal — recognise revenue at GROSS ticket price. Service complaints lying with the airline do not flip the conclusion.
Related questions
An entity agrees to deliver a good for ₹1,00,000; if delivery exceeds 30 days, a penalty rA 5-year contract requires the customer to use the vendor's system to process all of its tAST Ltd. has early-completion bonuses on a ₹25 cr contract: 15% bonus at 25% likelihood, 1XYZ Ltd. enters a contract to build sophisticated machinery for ₹2.5 crore. For each day aAn entity charges a NON-REFUNDABLE upfront activation fee for a new data connection plus mAn entity enters a 60-day CONSIGNMENT arrangement: it ships 1,000 dresses to a retailer; tAn entity sells Product A for ₹1,000 with a 40% discount voucher usable on additional purcAn entity sells gym memberships at ₹7,500 per year and offers a discounted renewal at ₹6,0