I spoke friend of mine, financial controller in an insurer, to ask about the accounting of deferred revenue. It’s like this:
@ asset of deferred rev
@ liability of a potential cancellation provision
Every month they determine the potential cancellations during cooling off (or other rev delay reason - there are many in insurance), create the provision and make a corresponding asset. As policies are activated, the cancellation provision in reduced and the deferred revenue is recognised.
In BIG’s case they should have been deferring the 35% advance and creating a cancellation provision against it. They should also have had a provision against the 41%. If they didn’t want a provision for potential lost revenue then they should have treated it as a loan.
IMO, amateur for sure.
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