Contract liabilities from prepaid packages and deposits

Prepaid packages and deposits generate substantial cash upfront that is not yet earned; recognizing it as revenue on receipt overstates current-period profit and understates the liability the entity owes in future service delivery, misleading users about both profitability and the entity's real obligations to patients who have already paid.

Does the prepaid package bundle multiple distinct services, such as prenatal visits, delivery and postnatal care, requiring the transaction price to be allocated across them? Is there a meaningful pattern of packages expiring unused that should be estimated as breakage and recognized systematically, rather than ignored until expiry? Are deposits described as non-refundable genuinely non-refundable in practice, or has the entity created a constructive obligation to refund them?

1) On receipt of any prepaid package fee or deposit, recognize a contract liability for the full amount received, not revenue. 2) Identify the distinct services bundled within the package (e.g. prenatal visits, delivery, postnatal care) and allocate the transaction price across them based on relative standalone selling prices. 3) Release revenue from the contract liability as each distinct service is delivered, matching the allocated price to that component. 4) Assess breakage risk, the likelihood some purchased services will never be used, and, where reliable historical redemption data exists, recognize breakage revenue systematically in proportion to the pattern of rights exercised by customers, rather than waiting for formal expiry. 5) Confirm whether stated non-refundable deposits are genuinely non-refundable in practice (no constructive obligation to refund); if a refund practice exists, treat accordingly as a refund liability. 6) Reassess breakage estimates periodically against actual redemption experience.

Where historical data supports a reliable breakage estimate, recognize breakage revenue in proportion to the pattern of rights exercised by customers (e.g. if historically 90% of package value is typically used, recognize the 10% breakage proportionally as components are consumed), rather than only on final expiry; measure the contract liability initially at the amount of consideration received; reassess the expected breakage rate at each reporting date as more redemption data becomes available.

Present contract liabilities from prepaid packages and deposits separately (current/non-current as appropriate); disclose the amount of revenue recognized in the period that was included in the contract liability balance at the start of the period; disclose the policy for allocating transaction price across bundled components; disclose the breakage estimation method and key assumptions where material.

• Recognizing the full package price as revenue on sale rather than deferring it as a contract liability
• ignoring breakage and only recognizing it as revenue on formal package expiry rather than systematically as evidence supports
• not allocating the price across distinct services within a bundled package, causing revenue to be recognized at the wrong time relative to actual service delivery
• treating a stated non-refundable fee as revenue immediately despite an established pattern of granting refunds in practice
• using an unsupported breakage rate carried forward without periodic validation.