A hotel has recently encountered staffing problems, resulting in a sub-standard service being provided to guests. The hotel has received a number of complaints, and management has responded by offering some customers partial refunds and others free drinks at the hotel bar. These have been offered as a 'goodwill gesture', as management believes it is not obliged to offer any compensation. Should these two forms of ex-gratia compensation be accounted for in the same way?rnNo. As regards ex-gratia compensation, revenue constitutes the fair value of consideration received or receivable under both International Financial Reporting Standards and UK GAAP. Given that there is only one contractual arrangement between the hotel and its guests, any cash payment made to the customer must constitute a reduction in revenue (the consideration for the service) rather than a cost. This is because the services provided to the customer did not support the amount paid.
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