Waitrose is one of the UK's major grocery store chains and runs a loyalty scheme called myWaitrose. myWaitrose provides free coffee to members.

Prior to 3 April 2017, this coffee was provided "no strings attached"; a myWaitrose card holder could walk into a Waitrose location and show his/her loyalty card and walk out with a free cup of coffee, regardless of whether he/she purchased anything else.

After 3 April 2017, Waitrose requires customers to make a purchase - no matter how large or small - to get a free cup of coffee. Assume that the costs associated with providing a customer with a cup of coffee is 40p. Waitrose also sells coffee for a standalone price of 2.50.

Based on the above:

a. Suppose that no customers actually pay for coffee; they either obtain coffee for free with their myWaitrose card or they do not get coffee at all. Suppose a customer buys salmon for 5 and that it costs Waitrose 3.60 to procure this salmon. The customer simultaneously uses her myWaitrose card to obtain a cup of coffee.

1. How should Waitrose recognise revenue associated with this transaction?
2. How much revenue and expenses should be attributed to the salmon and to the coffee before 3 April 2017?

How much revenue and expenses should be attributed to the salmon and to the coffee after 3 April 2017?b. Suppose that many customers actuallydopay for coffee on a standalone basis. Consider the same hypothetical customer from part (a) that buys salmon for 5. It still costs Waitrose 3.60 to procure this salmon. The customer also uses her myWaitrose card to obtain a free cup of coffee.

1. How should Waitrose recognise revenue associated with this transaction?
2. How much revenue and expenses should be attributed to the salmon and to the coffee before 3 April 2017?
3. How much revenue and expenses should be attributed to the salmon and to the coffee after 3 April 2017?