INTEGRATION: ADVANCED FINANCIAL ACCOUNTING AND REPORTING
FRANCHISE ACCOUNTING
PROBLEM 1
On January 1, 2023, Entity A granted a franchise right to franchisee for the operation of selling automobile parts. Entty A also granted
the franchise the right to access its trade name for a period of 10 years. The franchisee is required to pay an upfront non-refundable initial
franchise fee of P20,000,000 and a continuing franchise fee of 10% of the annual sales. It is the obligation of Entity A to construct the
franchise stall and to deliver 10,000 units of automobile parts to the franchisee.
Assume the following INDEPENDENT cases:
CASE 1:
Stand-alone selling pnoes
1. Tradename of the stall
4,000,000
2. Constnuction
3. Delivery of 10,000 units of automobile parts
3,000,000
not directly observable
After careful evaluation in the market, the price that a customer is wiling to pay for the delivery of 10,000 units of materials was P1,000,000
under the adjusted market assessment approach.
On October 1, 2023, Entity A already finished the construction of the stall and as of December 31, 2023, Entity A only delivered 2,000
units of automobile parts. The franchisee reported sales revenue on Dec 31, 2023 in the amount of P4,000,000.
1. Under IFRS 15, what is the revenue recognized pertaining to the delivery of automobile parts?
2. Under IFRS 15, what is the total revenue from initial franchise fee?
CASE 2:
Stand-alone selling prices
1. Tradename not directly observable
2. Construction of the stall not directly observable
3. Delivery of 10,000 units of automobile parts 4,000,000
The stall has an estimated cost of P4,000,000 with a margin of P6,000,000. Since it is the first time for Entity A to grant access to its trade
name. Entity A has not yet established a price for that service.
On October 1, 2023, Entity A already finished the construcion of the stall and as of December 31, 2023, Entity A only delivered 3,500
units of automobile parts. The franchisee reported sales revenue on Dec 31, 2023 in the amount of P1,500,000.
1. Under lFRS 15, what is the amount of transaction price allocated to the perfomance obligation tradename?
2. Under ERS 15, what is the total revenue from initial franchise fee for the year ended Dec 31, 2023?
3. Under FRS 15, what is the total revenue for the year ended Dec 31, 2023?
PROBLEM3
On January 1, 2023, ABC Inc. signed a franchise agreement to grant a license to DEF for a term of 2 years commencing in the date of
payment. The payment terms indicated on the contract called for a non-refundable P207,000 down payment and a 10% interest bearing
promissory note with face value of P138,000 and is payable in two equal annual installments, with the first payment due on December
31,22023.
1. What if the agreement granted DEF the right to use the intellectual property, how much is the total revenue recognized by
ABC Inc.?
2.
ABCWhat
Inc.?
ifthe agreement granted DEF the nght to access the intellectual property, howmuch is the total revenue recognized by
PROBLEM3
On January 1, 2023, an entity granted a franchise to a franchisee. The contract provided that the franchisee shall pay an initial franchise
fee of P500,000 and on-going payment of royalties equivalent to 8% of the sales of the franchisee. On January 1, 2023, the franchisee
paid down payment of P200,000 and issued a 3-year interest bearing note for the balance payable in three equal annual installments
starting December 31, 2023.
On June 30, 2023, the entity completed the performance obligation of the franchise at cost of P300,000. Aside from that, the entity
incurred indirect cost of P25,000. The franchisee stared operation on July 1, 2023 and reported sales revenue amounting to P50,000 for
the year ended December 31, 2023?
Under IFRS 15, what is the net income for the year ended December 31, 2023?
FRANCHISE ACCOUNTING
PROBLEM 1
On January 1, 2023, Entity A granted a franchise right to franchisee for the operation of selling automobile parts. Entty A also granted
the franchise the right to access its trade name for a period of 10 years. The franchisee is required to pay an upfront non-refundable initial
franchise fee of P20,000,000 and a continuing franchise fee of 10% of the annual sales. It is the obligation of Entity A to construct the
franchise stall and to deliver 10,000 units of automobile parts to the franchisee.
Assume the following INDEPENDENT cases:
CASE 1:
Stand-alone selling pnoes
1. Tradename of the stall
4,000,000
2. Constnuction
3. Delivery of 10,000 units of automobile parts
3,000,000
not directly observable
After careful evaluation in the market, the price that a customer is wiling to pay for the delivery of 10,000 units of materials was P1,000,000
under the adjusted market assessment approach.
On October 1, 2023, Entity A already finished the construction of the stall and as of December 31, 2023, Entity A only delivered 2,000
units of automobile parts. The franchisee reported sales revenue on Dec 31, 2023 in the amount of P4,000,000.
1. Under IFRS 15, what is the revenue recognized pertaining to the delivery of automobile parts?
2. Under IFRS 15, what is the total revenue from initial franchise fee?
CASE 2:
Stand-alone selling prices
1. Tradename not directly observable
2. Construction of the stall not directly observable
3. Delivery of 10,000 units of automobile parts 4,000,000
The stall has an estimated cost of P4,000,000 with a margin of P6,000,000. Since it is the first time for Entity A to grant access to its trade
name. Entity A has not yet established a price for that service.
On October 1, 2023, Entity A already finished the construcion of the stall and as of December 31, 2023, Entity A only delivered 3,500
units of automobile parts. The franchisee reported sales revenue on Dec 31, 2023 in the amount of P1,500,000.
1. Under lFRS 15, what is the amount of transaction price allocated to the perfomance obligation tradename?
2. Under ERS 15, what is the total revenue from initial franchise fee for the year ended Dec 31, 2023?
3. Under FRS 15, what is the total revenue for the year ended Dec 31, 2023?
PROBLEM3
On January 1, 2023, ABC Inc. signed a franchise agreement to grant a license to DEF for a term of 2 years commencing in the date of
payment. The payment terms indicated on the contract called for a non-refundable P207,000 down payment and a 10% interest bearing
promissory note with face value of P138,000 and is payable in two equal annual installments, with the first payment due on December
31,22023.
1. What if the agreement granted DEF the right to use the intellectual property, how much is the total revenue recognized by
ABC Inc.?
2.
ABCWhat
Inc.?
ifthe agreement granted DEF the nght to access the intellectual property, howmuch is the total revenue recognized by
PROBLEM3
On January 1, 2023, an entity granted a franchise to a franchisee. The contract provided that the franchisee shall pay an initial franchise
fee of P500,000 and on-going payment of royalties equivalent to 8% of the sales of the franchisee. On January 1, 2023, the franchisee
paid down payment of P200,000 and issued a 3-year interest bearing note for the balance payable in three equal annual installments
starting December 31, 2023.
On June 30, 2023, the entity completed the performance obligation of the franchise at cost of P300,000. Aside from that, the entity
incurred indirect cost of P25,000. The franchisee stared operation on July 1, 2023 and reported sales revenue amounting to P50,000 for
the year ended December 31, 2023?
Under IFRS 15, what is the net income for the year ended December 31, 2023?
