Accounting for free minutes
An operator enters into a service contract with a customer for a period of 12 months. Under the contract specifications, the customer is offered for the first 2 months 60 free minutes talktime per month and for the remaining 10 months of the contract the customer will pay a fixed fee of €30 per month for 60 minutes of communication per month. The operator considers the recoverability of the amounts due under the contract from the customer to be probable.
In our view, since the free minutes offer is linked to the non-cancellable contract, the fee receivable for the non-cancellable contract is spread over the entire contract term.
Consequently, the fixed fee of €300 (€30 × 10 months) to be received from the subscriber would be recognised on a straight line basis over the 12 month contract period, being the stage of completion of the contract. The operator therefore would recognise €25 each month over the twelve month period (€30 × 10/12 = €25).