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Franchise Consignment

This document contains three accounting problems related to franchise accounting and consignment sales. Problem A involves the initial franchise fee paid to a franchisor in installments and calculates revenue and profit. Problem B also involves an initial franchise fee paid in installments and calculates revenue under different scenarios. Problem C involves goods sold on consignment and calculates sales amount, commission earned, and consignor's profit.

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Clarissa Atillano Fababair
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90 views

Franchise Consignment

This document contains three accounting problems related to franchise accounting and consignment sales. Problem A involves the initial franchise fee paid to a franchisor in installments and calculates revenue and profit. Problem B also involves an initial franchise fee paid in installments and calculates revenue under different scenarios. Problem C involves goods sold on consignment and calculates sales amount, commission earned, and consignor's profit.

Uploaded by

Clarissa Atillano Fababair
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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BATANGAS STATE UNIVERSITY

MALVAR, BATANGAS

ACCOUNTING FOR SPECIAL TRANSACTIONS AND BUSINESS COMBINATIONS

FRANCHISE ACCOUNTING AND CONSIGNMENT SALES


PRACTICE SET

Problem A: On January 1, 2014, Saripulpy Company sells a franchise to Mr. Jam for an initial franchise
fee f P4,000,000. Upon signing the contract on the same day, Mr. Jam paid 50% of the said amount and
the balance shall be paid in 5 annual equal installments starting December 31, 2014. Mr. Jam issued an
interest-bearing note for the said balance with interest rate of 10%. (Assume that the cost of initial
franchise fee amounted to P3,000,000)

1. How much is the franchise revenue if the franchiser has substantially performed all the services
required by the initial franchise fee, the down payment is non-refundable and the collection of
the note is reasonably assured?
2. How much is the Realized Gross Profit initial franchise if the down payment is nonrefundable,
the collectability of the note is not reasonably assured and the franchiser has performed all the
services required?

Problem B. Corci Coffee Company charges an initial franchise fee of P900,000 to Mrs. Mocha for the
right to operate as a franchisee of Corci Fee. Of this amount P180,000 is payable when the agreement is
signed and the balance is payable in 4 equal installment payments. In return for the payment of initial
franchise fee, the franchisor will assist the franchisee to locate the site, supervise the construction
activity and provide bookkeeping services. The credit rating of the franchisee indicates that the money
can be borrowed at 10%. The present value of an ordinary annuity factor is 3.16987.

1. How much is the franchise revenue if the down payment is refundable, the collectability of the
note is reasonably assured but the substantial services remain to be performed?
2. How much is the franchise revenue is the down payment is nonrefundable, the collectability of
the note is reasonably assured and there is substantial performance of services?
3. How much is the franchise revenue if the down payment is nonrefundable, the collectability of
the note is not reasonably assured and there is substantial performance of services?

Problem C. Bulldog Manufacturing Corp. consigned ten refrigerators to Poodle Sales Co. These
refrigerators had a cost of P180 each. Freight on the shipment was paid by Bulldog in the amounting
P120. Poodle Sales Co. submitted an account sales stating that it had sold six refrigerators and remitted
to P1,365 balance due. Bulldog after the following deductions and from the selling price of the
refrigerators.
Commission 15% of selling price
Marketing Expenses P90
Delivery and Installation of items sold P60
Cartage cost paid upon receipt of consignment P15
1. The consignee sold the 6 refrigerators for a total of
2. The commission earned on the sale of the 6 refrigerators by Central Sales Co. was
3. The consignor’s net profit from the sale of the consigned goods was

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