QUESTION ONE

You are currently enrolled as a second$-$year accounting student at the International Business

School of Africa. As part of your holiday internship, you have been assigned to the audit of

Active Life Group Ltd $($Active Life$),$ a leading fitness and wellness company listed on the

Johannesburg Stock Exchange. Active Life operates a chain of fitness centres and health$-$

focused cafes across South Africa.

Active Life acquired Fit Boost Ltd $($Fit Boost$)$ in the current financial year. Fit Boost manages

a network of gyms and health cafes that offer nutritional products and fitness services.

Fit Boost's business model for revenue includes two options for customers:

Option A: Month$-$to$-$month contract for R$2000$ per month, payable in advance at the

beginning of each month. This provides customers with access to gym facilities and group

fitness classes.

Option B: Two$-$year contract for R$28800.$ The contract amount is payable in six equal

monthly instalments from the date of the contract. Customers under this option receive the

following:

A gym membership, which provides full access to gym facilities and group fitness

classes for the duration of the contract.

Health booster smoothies, provided at the health cafe for the first six months of the

contract $($four smoothies per month$),$ a personalized gym towel and a personalized

gym bag.

Additional Information

Fit Boost's current accounting policy for revenue recognition is as follows:

Option A contracts: Recognised as revenue on a monthly basis.

Option B contracts: Recognised immediately when the contract is signed.