If you’re flying from Vancouver to Toronto with Air Canada, you can choose a Tango fare of $259 (plus taxes), a Tango Plus fare for $324 (plus taxes, etc.), or you can pay $804 (plus taxes, etc.) for a Latitude fare. Each of these fare classes has different conditions regarding refunds, altering flight dates, preflight seat selection, etc.
Assume that Air Canada’s management team is brainstorming its options for recognizing the revenue from the different categories of fares. One member of the management team says it should recognize the revenue as soon as the tickets are sold for the Tango-type fares because these tickets are non-cancellable and have a change fee. Passengers seldom change these fares. Another member of the management team states that revenue should be recognized when the passengers arrive at their destinations.
Instructions
After the class has been divided into groups and you have been assigned one of the fare types (Tango or Latitude), do the following:
(a) Evaluate the effect of each of the two revenue recognition options proposed by the employees on recorded revenues, expenses, and profit.
(b) Determine the point at which you think Air Canada should recognize the revenue from ticket sales. Explain why you believe your chosen point of revenue recognition is the best, referring to appropriate recognition criteria in your answer.
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