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Accounting For Franchise Operation - Franchisor
Accounting For Franchise Operation - Franchisor
1) D. 189,167
July 15, 20x1 Equipment
Dec. 31, 20x1 Franchise (700,000/10 yrs.) x 5/12
Dec. 31, 20x1 Franchise (600,000 x 10%)
Total Revenue in 20x1
2) B. 300,000
Fixed Consideration (200,000 x 2 yrs.)
Royalty (1,000,000 x 20%)
Total Revenue in 20x1
3) D. 212,434
100,000 x (PV of ordinary annuity @1% , n=24)
10,000 x 21. 2434 = 212, 434
Total Contract Revenue in 20x1 = 212,434
4) C. 80,747
Payment upon signing the contract (100,000 x 20%)
PV of note receivable:
[(100,000 x 80%)/4] x PV of ordinary annuity @12%, n=4
Total Contract Revenue in 20x1
5) D. 0
Explanation:
The promise to issue the license has the purpose of giving the client access to the entity's intellectual property.
This is due to the fact that the intellectual property changes during the course of the license period. As a result,
the performance obligation is met gradually. The straight-line technique is used to recognize the transaction price,
which is the sum of the cash down payment and the present value of the note, over the 4-year license period.
Therefore, there will be no contract revenue to be recognized on December 31, 20x1, because the entity will just begin
6) B. 27,477
Payment upon signing the contract (100,000 x 20%)
PV of note receivable:
[(100,000 x 80%)/4] x PV of ordinary annuity @12%, n=4
Total Contract Revenue in 20x1
7) A. 15,365
Payment upon signing the contract (100,000 x 20%)
PV of note receivable:
[(100,000 x 80%)/4] x PV of ordinary annuity @12%, n=4
Total Contract Revenue in 20x1
8) A. 1,000,000
Explanation:
According to the problem, the contract does not include a significant financing component.
With this, the annual payments of 1,000,0000 Is recorded as revenue as soon as they become due.
Therefore, the fixed payment of 1,000,000 is the recognized revenue for Year 1 of the contract.
9) D. 0 ; 0
According to Step 1 of Application of the Principles of PFRS 15, stated on letter E "the consideration in the contract
is probable of collection . When assessing collectibility, the entity shall consider only the customer's ability and
intention to pay the consideration on due date". In the given problem, the Step 1 is not met because it is noticeable
that the contract is not probable of collection which contradicts the Step 1 of PFRS 15.
Therefore, there would no be contract revenue and contract costs to be recognized and expensed in 20x1.
100,000
200,000
300,000
20,000
60,747
80,747
20,000
60,747
80,747
20,187
7,290
27,477
20,000
60,747
80,747
8,075
7,290
15,365
80,747
44,018
-
124,765
(32,000)
(25,000)
-
(57,000)
67,765
ote) x 12% x 6/12 7,114
74,879