Part A) Revenues which have been received but are yet to be earned are treated as \"Unearned Revenues\" and are recorded as liabilities. Such a situation arises where a company has received the payment for the goods/services yet to be produced/provided. In the given case also, the company had received the payment at the time of booking the membership and was following the right approach by recording the amount so received as unearned revenue. Once the company has started providing the services to the members, it can transfer the value of services so provided from its unearned revenues account to its sales revenue. _________ Part B) No, the proposal is not ethical. As per the accounting standards, a company cannot consider advance payment received for services yet to be provided as revenue, as it has still not been earned by the company. There can be a situation where a members decides to withdraw his/her membership before the services have been provided. In such a case, the company will have to readjust its already reported sales figures which would misled investors and other stakeholders of the company. The motive behind the proposal is to improve the company\'s profitability and the bonuses which is not ethical. The actual financial position of the company is far different from what its managers are trying to achieve with the use of the proposed solution. _________ Part C) If the proposal is implemented, the payments will get recorded as revenues and company\'s sales volume would increase. This would result in an increase in the profits for the company. However, the long term impact of this proposal can be devastating as the financial information provided to different stakeholders is incorrect. As soon as these financial irregularities will get exposed, the investors would prefer to withdraw their existing investments and the company won\'t be able to attract any further investments. Loss of goodwill and market reputation can have a substantial affect on company\'s business. Additionally, the company\'s operations can be subject to various governance issues (for financial irregularities) by the relevant stock exchanges/government authorities. Solution Part A) Revenues which have been received but are yet to be earned are treated as \"Unearned Revenues\" and are recorded as liabilities. Such a situation arises where a company has received the payment for the goods/services yet to be produced/provided. In the given case also, the company had received the payment at the time of booking the membership and was following the right approach by recording the amount so received as unearned revenue. Once the company has started providing the services to the members, it can transfer the value of services so provided from its unearned revenues account to its sales revenue. _________ Part B) No, the proposal is not ethical. As per the accounting standards, a company cannot consider advance payment received for services yet to be provided as revenue, as .

1. Part A)
Revenues which have been received but are yet to be earned are treated as "Unearned
Revenues" and are recorded as liabilities. Such a situation arises where a company has received
the payment for the goods/services yet to be produced/provided. In the given case also, the
company had received the payment at the time of booking the membership and was following
the right approach by recording the amount so received as unearned revenue. Once the company
has started providing the services to the members, it can transfer the value of services so
provided from its unearned revenues account to its sales revenue.
_________
Part B)
No, the proposal is not ethical. As per the accounting standards, a company cannot consider
advance payment received for services yet to be provided as revenue, as it has still not been
earned by the company. There can be a situation where a members decides to withdraw his/her
membership before the services have been provided. In such a case, the company will have to
readjust its already reported sales figures which would misled investors and other stakeholders of
the company. The motive behind the proposal is to improve the company's profitability and the
bonuses which is not ethical. The actual financial position of the company is far different from
what its managers are trying to achieve with the use of the proposed solution.
_________
Part C)
If the proposal is implemented, the payments will get recorded as revenues and company's sales
volume would increase. This would result in an increase in the profits for the company.
However, the long term impact of this proposal can be devastating as the financial information
provided to different stakeholders is incorrect. As soon as these financial irregularities will get
exposed, the investors would prefer to withdraw their existing investments and the company
won't be able to attract any further investments. Loss of goodwill and market reputation can
have a substantial affect on company's business. Additionally, the company's operations can be
subject to various governance issues (for financial irregularities) by the relevant stock
exchanges/government authorities.
Solution
Part A)
Revenues which have been received but are yet to be earned are treated as "Unearned
Revenues" and are recorded as liabilities. Such a situation arises where a company has received

2. the payment for the goods/services yet to be produced/provided. In the given case also, the
company had received the payment at the time of booking the membership and was following
the right approach by recording the amount so received as unearned revenue. Once the company
has started providing the services to the members, it can transfer the value of services so
provided from its unearned revenues account to its sales revenue.
_________
Part B)
No, the proposal is not ethical. As per the accounting standards, a company cannot consider
advance payment received for services yet to be provided as revenue, as it has still not been
earned by the company. There can be a situation where a members decides to withdraw his/her
membership before the services have been provided. In such a case, the company will have to
readjust its already reported sales figures which would misled investors and other stakeholders of
the company. The motive behind the proposal is to improve the company's profitability and the
bonuses which is not ethical. The actual financial position of the company is far different from
what its managers are trying to achieve with the use of the proposed solution.
_________
Part C)
If the proposal is implemented, the payments will get recorded as revenues and company's sales
volume would increase. This would result in an increase in the profits for the company.
However, the long term impact of this proposal can be devastating as the financial information
provided to different stakeholders is incorrect. As soon as these financial irregularities will get
exposed, the investors would prefer to withdraw their existing investments and the company
won't be able to attract any further investments. Loss of goodwill and market reputation can
have a substantial affect on company's business. Additionally, the company's operations can be
subject to various governance issues (for financial irregularities) by the relevant stock
exchanges/government authorities.