The Australian Accounting Standards Board Staff, in conjunction with BDO Australia, have issued two frequently asked questions (FAQs) to assist schools in determining which standard to apply when accounting for different types of upfront fees received from prospective parents.
The two questions deal with:
Waiting list fees are fees paid by parents, often when a child is born or still in the womb, to have the child’s name added to the school’s waiting list for possible future admission for a desired year (e.g. kindergarten, Year 3, Year 7, etc.). Paying the fee does not guarantee that the child will be offered a place and there are often many more names on the waiting list than places to be offered. While admission is usually granted on a first-come-first-served basis, priority is often given to children of alumni, siblings of current and past students and members of the school parish, etc. Payment for the waiting list fee is non-refundable and non-transferrable.
The FAQ first considers whether the waiting list fee arises from an enforceable contract with a customer, and then if so, what are the identifiable performance obligations under AASB 15.
It concludes that there is one performance obligation (putting the child’s name on the waiting list) that is satisfied at a point in time when the name is added.
Where there is no enforceable contract, AASB 1058, paragraph 10 applies and the waiting list fees are recognised immediately in profit or loss.
The result is that regardless of whether the fees fall within the scope of AASB 15 or AASB 1058, in both cases, for the fact pattern specified, income will be recognised on receipt of the fees.
Judgement will need to be applied where the fact pattern varies.
Please read the full FAQ for more information.
Enrolment fees are upfront fees paid by parents when they accept an offer of enrolment for their child, and guarantees the student a place for an agreed-upon year and for the agreed-upon period of tuition (e.g. high school).
The fee is non-refundable and non-transferrable and is not offset against any future tuition fees.
The FAQ first considers whether the enrolment fees arise from an enforceable contract with a customer, and then if so, what are the identifiable performance obligations under AASB 15.
It notes that the upfront fee might cover internal administrative activities which enable the school to provide future tuition services to the student, but these activities do not transfer a promised good or service to the prospective student, separate from the performance obligation to deliver future tuition services.
It therefore concludes that the non-refundable upfront enrolment fees do not represent a separate performance obligation, but rather an advance payment for future tuition services. As such, the enrolment fees are deferred and recognised as revenue over the contract period for tuition services.
Judgement will need to be applied where the fact pattern varies. In some cases, depending on the contract, there may be separate performance obligations to transfer a good or service to the student, such as the provision of school uniforms or equipment, and these would be accounted for separately on transfer.
Please read the full FAQ for more information.