BKARK3063 SFAR G4 (D)

ACCOUNTING FOR AVIATION INDUSTRY

NATURE OF ACTIVITIES

AVIATION INDUSTRY IN MALAYSIA

ACCOUNTING ISSUES IN AVIATION INDUSTRY

An entity transfers control of a good or service over
1. Revenue recognition time and, therefore satisfies a performance obligation
-Measured based on the consideration specified in and recognizes revenue over time, if one of the
a contract with a customer. Therefore, MFRS15 following criteria is met:
met:
Revenue from Customer with Contract is applicable
in revenue recognition policy. (a) The customer simultaneously receives and
-Revenue is recognized when or as it transfers consumes the benefits provided by the entity’s
control over a product or service to customer. performance as the entity performs;
(b) The entity’s performance creates or enhances an
• If a performance obligation is not satisfied over asset that the customer controls as the asset is
time in accordance with MFRS 15, an entity satisfies created or enhanced; or
the performance at a point in time. (c) The entity’s performance does not create an asset
with an alternative use to the entity and the entity has
In airline industry, the common revenue types are: an enforceable right to payment for performance
1.Revenue from passenger completed to date.
2.Revenue from freight services

TYPES OF REVENUE
Revenue from other income
Revenue from passenger
"From Ticket Sales to Takeoff: How Airlines Recognize
Revenue"
🎁 1. Customer loyalty programme
Where members (customers)
Charter Flights: Private or custom accumulate points for purchases
Types of routes for groups. made which entitle them to
passenger discounts on future purchases . 💸
revenue Scheduled Flights: Regular routes
How Revenue is Recognized
connecting cities. 💼 Step 1: Points issued = Deferred
It is a normal practice that flight tickets are sold in advance to the Revenue (recorded under
actual flight date. Initially, all ticket sales are recognized as ‘sales liabilities. Trade and other
payables).
in advance’ which is presented as current liabilities in line with
the initial application of MFRS 15.
✅ Step 2: Points redeemed =
Recognized as Revenue.
When is Revenue Recognized? The amount of revenue
📍 At Service Time: Recorded when the flight takes place. recognised is computed
🔑 Step 1: Identify the performance obligation. based on the number of
points redeemed and the
What's Included in Revenue? redemption value of each
💰 Ticket Price/Recorded: Selling Price and net of discounts. point which is calculated on a
🛅 Ancillary Revenue: weighted average basis.
Airport & Insurance Surcharges. Customer loyalty programme
Baggage Fees. is recognised when the
Meals & Merchandise. obligation is completed.
Seat Assignments & Documentation Fees. 2. Breakage
If there is any contract modification and add distinct
Represents the estimated loyalty
goods or services, it should be accounted as a separate
points that are not expected to
contract. Example: Airport shuttle transportation services. be redeemed by members.
Deferred breakage is included in
trade and other payables.
The amount of revenue
Revenue from freight services
recognised related to deferred
breakage is based on the
number of loyalty points
redeemed in a period in relation
Freight revenue is a distinct
to the total number expected to
performance obligation. be redeemed.
It is recognized upon the completion of How is Breakage Estimated?
services rendered, net of discounts 1. Membership terms and conditions.
2. Historical redemption patterns.
3.Adjustments for policy or behavior
changes.
 BKARK3063 SFAR G4 (D)

TOPIC 8:
ACCOUNTING FOR AVIATION INDUSTRY

LEASE OF AIRCRAFT

1.
2.

3.

1.
2.

1.

2.

1.
2.

PRESENTATION OF FINANCIAL STATEMENT

ILLUSTRATION OF A STATEMENT
OF PROFIT AND LOSS FOR AN
AIRLINE COMPANY

ILLUSTRATIO N
(EXTRACT) OF A
STATEMENT OF
FINANCIAL
POSITION FOR AN
AIRLINE
COMPANY

Self Assessment Questions Answers

1. Main Operators of Airline Companies in Malaysia
Malaysia Airlines
1. Name 2 main operators of airline company in
AirAsia
Malaysia.

2. Revenue Recognition for Flight Tickets

2. A customer bought a flight ticket from Alor Setar
Revenue (RM325) is recognized on 30/3/2019, the
to Kuala Lumpur on 1/3/2019. The flight is
flight date, as the service is provided. Initially, the
scheduled on 30/3/2019. The customer paid using
payment is recorded as a liability ("sales in
credit card for the following items: Ticket price
advance").
RM250, airport and insurance surcharges RM50,
administrative fees RM10, and pre-assigned seat
3. Finance Lease vs. Operating Lease
RM15. Explain briefly how and when should the
Finance Lease: Risks/rewards transferred, asset
airline company recognize the revenue from the
capitalized, depreciated, and payments split into
sale of flight tickets to the customer.
liabilities and expenses.
Operating Lease: Risks/rewards retained by lessor,
3. Explain the differences between finance lease
payments expensed, and no asset on lessee’s
and operating lease.
balance sheet.
4. In your opinion, why does IFRS/MFRS moved
4. On-Balance Sheet Financing
from ‘off-balance sheet financing’ to ‘on-balance
Transparency: Shows true obligations.
sheet financing’ for leasing?
Comparability: Consistent lease treatment.
Clarity: Highlights financial commitments.