This requirement aims to improve students' ability to evaluate whether and to what extent financial reporting effects (reduced liability) should drive business decisions (elimination of SRP).
While the benefits of eliminating SRP are cosmetic and short-term in nature, the costs are real and long-term. Whether the benefit of reduced liability is worth the costs of the adverse effect on Spectacular's reputation, possibility of lawsuits, reduced customer loyalty, and loss of competitiveness sparks a good debate in the classroom. Also, if the SRP is eliminated, revenues from the sale of mileage credits to partners—a growing segment of revenues for airlines—will disappear.1
If SRP is eliminated, Spectacular Inc. would reduce the SRP Liability by $88.2 million and recognize an equivalent gain on the elimination of SRP. Case Exhibit 4 indicates that half of the $88.2 liability is current and the other half is noncurrent. Accordingly, the effect of SRP elimination on...
