Pre-Paid Legal Services Essay

805 Words Jan 30th, 2011 4 Pages
Case Study – Pre paid Legal Services

Q1) How does PPLS create value for its customers? What are the critical risks that it has to manage well?

Ans) PPLS creates value for its customers by insuring their future legal costs by charging an advance premium monthly . It sells memberships, which allow members to access legal services through a network of independent law firms in each state of USA. It also promotes multi-level marketing by encouraging members to become associates and get commission for any new member who joins by their referral.

Critical risks that it has to manage are

- Non-collection of commissions already advanced to associates when members fail to pay their premium dues.

- Also when there is a increase
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- The cash inflows i.e. the premiums received would be accounted as revenues and commission paid to associate as expenses.

- The cash outflow of 171750 is recognized over the course of 3 years equally. In the first year they recognize 57250 as expense in 1st year and the remaining 114500 is recorded as pre-paid expenses in assets on balance

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