Geelong City Council spent $5 million on a gym and healthy facility for its staff. The objective of this new facility expenditure was to encourage staff to adopt a healthy lifestyle. The use of facility will be free of cost to the staff. It is expected that although there will be no revenue generated from this new facility operating costs are expected to be $650,000 per annum. Required: (a) Discuss if Geelong City Council should record the cost of new facility as an asset, or treat it all as an expense. (b) An alternative is to charge a membership fee for the use of the facilities. Would this change anything related to your decision?
Geelong City Council spent $5 million on a gym and healthy facility for its staff. The objective of this new facility expenditure was to encourage staff to adopt a healthy lifestyle. The use of facility will be free of cost to the staff. It is expected that although there will be no revenue generated from this new facility operating costs are expected to be $650,000 per annum. Required: (a) Discuss if Geelong City Council should record the cost of new facility as an asset, or treat it all as an expense. (b) An alternative is to charge a membership fee for the use of the facilities. Would this change anything related to your decision?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Geelong City Council spent $5 million on a gym and healthy facility for its staff. The objective of this new facility expenditure was to encourage staff to adopt a healthy lifestyle. The use of facility will be free of cost to the staff. It is expected that although there will be no revenue generated from this new facility operating costs are expected to be $650,000 per annum.
Required:
(a) Discuss if Geelong City Council should record the cost of new facility as an asset, or treat it all as an expense.
(b) An alternative is to charge a membership fee for the use of the facilities. Would this change anything related to your decision?
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