read the annual report of an airline company and describe how they treat frequent flier mile. Do they treat it as a liability? How does the company measure it? if it does not say how, can you offer a suggestion?
Accounting?
- Posted:
- 3+ months ago by shelly1992
- Topics:
- treat, read, company, mile, airline, report, accounting
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Answers (1)
The obligation to provide free or reduced-fare travel to passengers who redeem their accrued frequent flyer program (FFP) benefits represents a significant liability on every major airline’s balance sheet. Major airlines employ one of two methods to account for the liabilities they incur when issuing mileage credits to traveling passengers. The Deferred Revenue Method recognizes a liability for the fair value of the outstanding mileage credits (with “fair value” defined under International Financial Reporting Standards (IFRS) as “the amount for which the award credits could be sold separately”). The Incremental Cost Method recognizes a liability for the marginal cost of providing air transportation to eligible award passengers (i.e. the cost of taxes, fuel, food, etc. to fly one additional passenger on a seat that otherwise would have been empty—generally a nominal amount)