Trans-Share Inc.
1) Trans-Share should account for the sale of the fractional interest in the airplane in accordance to ARC 606. The revenue should be recognized at the time of inception of the customer’s contracts. Relating to ARC 606-10-25-14, the aircraft availability and the flight time services qualify as performance obligations. Although the form of the program appears to be a rental of an aircraft, the title to the fractional interest passes to the customer at the time of sale. The additional services and requirements are explicitly and distinctly outlined in the contract. Also, the contracts are substantially the same from customer to customer. This chosen method of accounting for the program should be seen as a high-quality investment. Therefore, these contracts meet specific performance obligations that are enforceable by the hand of the law. Specifically referring to ARC 606-10-05-5(a)(b)(c), I have concluded that the Trans-Share offers a service contract and not a lease for the following reasons: 1) the contract states that Trans-Share is legally and contractually obligated to provide goods/services their customers. 2) Trans-Share’s performance obligations are that they must have an aircraft available for when the customers want to travel, 3) the fractional interest transaction price is what Trans-Share expects to receive for providing their goods/services, 4) this transaction price will be adjusted based on the one-year probation period and/or the direct financing option available to customers, 5) the price for each flight/aircraft will be generally allocated and estimated if the standalone selling price is not reasonably estimated, 6) the revenue that Trans-Share earns should be recognized when each performance obligation (flights by customers) is completed.
2) The revenue from the fractional interest in the aircraft should be deferred and