Super Fast Internet Railway Ticketing Company Limited provides service of booking railway tickets through the Internet. The company made investment for setting up of infrastructure for providing such services including computers, servers, printers, manpower, etc. The company has been given access to the ‘Passenger Reservation System’ (PRS) of railways for advance reservation. Any customer requiring booking of a railway ticket is required to register himself/herself with the company at its web site and thereafter the customer can send his request for booking of the ticket through the Internet. The company collects cost of the tickets and its service charges from the customer through credit card or direct debit to the customer’s bank account through its payment gateways. Tickets issued to the customers are either hand­delivered from its office or sent by courier at the address given by the customer.

The company maintains an advance deposit with the Railways. Payment to Indian Railways for the tickets booked by the company is made by way of adjustment against the amount being maintained as ‘Advance Deposit’ with the Railways. Statement for the cost of the tickets booked by the company is generated every day and the amount against those tickets is charged by the Railways from the deposit maintained with it.

The company levies service charges on its customers and the same is recovered in addition to the cost of the tickets. No fees or other remuneration is paid by the railways. The quantum of the service charge is exclusively decided by the company. Indian Railways does not interfere in any manner to decide the service charges made by the company from the customers.

In case of default, repudiation of transaction or non­recovery of cost of ticket, etc., the company is responsible for the same and not the Railways. In case of cancellation of tickets also, refund is allowed only by the company. Refund on the cancelled ticket is 4 received by the customer from the company by way of direct credit into his credit card account/bank account. In short, while the company is responsible to Indian Railways for payment of the cost of tickets, it has to recover the cost of the tickets from the customers and also to pay refunds to the customers.

The accounting policy of the company for revenue recognition and expenses is given as follows:

Income from Internet­ticketing is recognized on the basis of value of the tickets sold through the corporation’s web­enabled payment gateway including service charges.

The cost of tickets booked through the Passenger Reservation System of Indian Railways is recognized as expenditure on accrual basis.

Questions for Discussion

Based upon the facts given, suggest appropriate accounting policy for the company for revenue and expenses recognition?