A. Based on the case discussion and your knowledge of AIS, complete the comparison between the revenue cycle of a merchandising business and of SMRT. Use Table 1 below to provide your answers and re-sequence the steps, if appropriate.
B. Based on the information provided in the case, develop a context diagram of SMRT's revenue cycle. Note: SMRT has revenues from train operations and other services; this requirement refers only to the train operations revenue cycle.
C. Verify revenue and cash collections charged on the EZL card. The EZL card-issuing company sends SMRT a recent statement of daily fare collected on EZL cards from passengers. To verify if the amount is reasonable based on operational data, you should plan to calculate the amount (of fare collected) independently using the following two tables. Table 2 lists the number of journeys between any two stations based on exit and entry gate scans (please note, this is only a representative illustration, and not all stations on the train network are included). Table 3 is the fare table for travel between two stations (again, this is illustrative only). You are to calculate the amount of revenue that should have been collected by the EZL card-issuing company.
D. Identify internal controls in the revenue cycle and related train operations that are supposed to, or should, exist.
E. Apply critical thinking to the following accounting issue related to the revenue cycle: Deposit on paper tickets is a current liability. To simplify accounting for deposits, the controller of SMRT suggests the following: “The maximum amount SMRT would be liable for is for the deposit on paper tickets issued within last 30 days, minus the number of these tickets on which the deposit is already claimed by the passenger. Any unclaimed deposits remain (as a gain) with SMRT. Based on past data, we can reasonably estimate what percentage of tickets will be returned for deposit. Historically, if 90% of tickets are not returned within 30 days, SMRT should record only 10% of the deposits as a current liability. The rest goes to the ticket revenue recognized on paper tickets. I suggest we use this percentage (10% in the example here) to record the deposit liability.”
What do you think? Do you agree with the controller?