# Deferred Revenue and Prepaid Subscribers

#### FootNoted

Cheers, everyone! Been stuck on this problem for quite sometime. Perhaps I am over-thinking it. Any insights would be greatly appreciated. Thanks.

Im trying to calculate new prepaid subscribers in two periods, 2009 and 2010.

Each new prepaid subscriber gives way to 475 of current portion of deferred revenue and 7600 of non-current portion deferred revenue. When services are performed annually in subsequent periods, 475 is credited to income.

Questions:
1. How many new prepaid subscribers were there in each period?
2. What's the minimum number of new users needed for ending balance of Deferred Revenue to increase in 2010?
3. Should the increase in amount credited to income in 2010 be equal to the number of new subscribers in 2009 * 475 + amount credited to income in 2009? Explain.

2009
Deferred Revenue
Beg Balance: 84,292
Deferred revenue arising from new subscribers: 33,172
Credited to income: (28,287)
Ending balance: 89,177

2010
Deferred Revenue
Beg Balance: 89,177
Deferred revenue arising from new subscribers: 76,042
Credited to income: (48,349)
Ending balance: 116,870

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#### FootNoted

Will have a crack at this myself and hope a kind soul will offer some feedback.

Question 1
Since (1) new subscriber = 8075 deferred revenue (DR), then "Deferred revenue arising from new subscribers" / 8075 = new subscribers in a given period. So, 33,172/8075 and 76,042/8075 gives us these numbers.

Thoughts?

Question 2
Since "earned" income is always 475/subscriber/period, "Credited to income"/475 = the number of (cumulative) prepaid subscribers in the previous period.

For the balance to increase, we need to increase DR account by more than it decreases (i.e. credited to income).It decreased by 28287.

28287/8075 = 3+ new subscribers will allow us to increase the balance of DR

Thoughts?

Question 3.

Still don't know this one.

Any feedback is greatly appreciated.

Thoughts?

#### FootNoted

Think I have figured out Question 3.

This account, in theory, should be cumulative. DR from prepaid storage fees is recognized each year for existing subscribers and added to by new subscribers. The change in this account, therefore, should be equal to the number of new subscribers in the current period * 475 + amount credited to income in the previous period. Said another way, the increase / 475 should give us the number of new subscribers.

Anyone care to confirm?

Thanks.

#### kirby

VIP Member
1. I agree with your method on number one. I am just concerned that the answer you get this way is not a whole number. so it means "fractional " subscribers.

2. Your approach is correct but you are applying it to the wrong year. Question says "for 2010" not 2009.

3. Answer is no. Reason is the amount credited to income in 2010 will be 1) the number of 2009 new subscribers time \$475 (so that part is true) PLUS \$475 for each OLD subscriber who has not fully amortized into income yet. We don't know that number but it is NOT the amount credited to income in 2009 BECAUSE the ACTUAL number for 2010 does NOT equal the ACTUAL 2009 number.

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#### FootNoted

Cheers, Kirby. Thanks for your attention.

1. Yes, I agree, which is why I had some hesitation in using this method
2. Good catch
3. I'm still digesting this one

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