(b) One of the hotels owned by Norman is a hotel complex which includes a theme park, a ca

(b) One of the hotels owned by Norman is a hotel complex which includes a theme park, a casino and a golf course,

as well as a hotel. The theme park, casino, and hotel were sold in the year ended 31 May 2008 to Conquest, a

public limited company, for $200 million but the sale agreement stated that Norman would continue to operate

and manage the three businesses for their remaining useful life of 15 years. The residual interest in the business

reverts back to Norman after the 15 year period. Norman would receive 75% of the net profit of the businesses

as operator fees and Conquest would receive the remaining 25%. Norman has guaranteed to Conquest that the

net minimum profit paid to Conquest would not be less than $15 million. (4 marks)

Norman has recently started issuing vouchers to customers when they stay in its hotels. The vouchers entitle the

customers to a $30 discount on a subsequent room booking within three months of their stay. Historical

experience has shown that only one in five vouchers are redeemed by the customer. At the company’s year end

of 31 May 2008, it is estimated that there are vouchers worth $20 million which are eligible for discount. The

income from room sales for the year is $300 million and Norman is unsure how to report the income from room

sales in the financial statements. (4 marks)

Norman has obtained a significant amount of grant income for the development of hotels in Europe. The grants

have been received from government bodies and relate to the size of the hotel which has been built by the grant

assistance. The intention of the grant income was to create jobs in areas where there was significant

unemployment. The grants received of $70 million will have to be repaid if the cost of building the hotels is less

than $500 million. (4 marks)

Appropriateness and quality of discussion (2 marks)

Required:

Discuss how the above income would be treated in the financial statements of Norman for the year ended

31 May 2008.

(b) Property is sometimes sold with a degree of continuing involvement by the seller so that the risks and rewards of ownershiphave not been transferred. The nature and extent of the buyer’s involvement will determine how the transaction is accountedfor.