Intercity Bus Lines (Intercity) is a Canadian company that provides bus transportation between communities throughout Canada. In recent years, bus travel and the company's revenues have declined significantly and it's looking for ways to build its customer base. The marketing manager has observed that frequent flyer programs are very successful for airlines and has suggested a similar program for Intercity. She suggests that for every mile of travel on an Intercity bus a traveller would receive one point. The points could be redeemed for travel on Intercity buses. She proposes that levels be established; for example, for 500 points a customer might receive a trip of 250 miles or less.
At a recent planning meeting, Intercity's CFO raised some questions about the frequent travel programs. He wondered if there would be any impact on the company's financial statements. After the meeting, the CFO asked you to prepare a report discussing the proposed program and the financial reporting impact it would have. He asked you to consider the following:
• Would frequent travel points be considered liabilities?
• If they are liabilities, how are they measured?

• What effect would the plan have on the financial statements and should management be concerned about these impacts?
• What types of concerns should management have in operating such a program?

Prepare the report requested by the CFO.

  • CreatedFebruary 26, 2015
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