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Franchise Accounting

The document discusses accounting for franchise fees from the perspective of the franchisor under PFRS 15. It outlines how to apply the 5-step model to determine if fees should be recognized at a point in time or over time, and how initial franchise fees differ from continuing franchise fees in terms of revenue recognition.

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misonim.e
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104 views2 pages

Franchise Accounting

The document discusses accounting for franchise fees from the perspective of the franchisor under PFRS 15. It outlines how to apply the 5-step model to determine if fees should be recognized at a point in time or over time, and how initial franchise fees differ from continuing franchise fees in terms of revenue recognition.

Uploaded by

misonim.e
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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AFAR 06-04 FRANCHISE ACCOUNTING

Accounting for Franchise Fees (FRANCHISOR) – PFRS 15


Initial Franchise Fee
Apply the 5 1. Contract – Franchise Agreement
step model 2. Performance Obligations
(COTA-Rev) • Not distinct from one another – combined into 1 performance obligation (SIPO)
• Distinct – separate performance obligations (SEPO) (if silent, SEPO)
3. Transaction Price
• Consider if there is significant financing component
Sale/revenue + loan
Get the PV by considering the ER vs SR
4. Allocate
5. Recognize revenue
• Special Rule:
▪ License/Tradename
a) Right to Use – franchisor/seller gives control – usually no more ongoing
activities needed (i.e., tradename is not modified anymore)
Recognized @ Point in Time upon transfer of control
b) Right to Access – franchisor “pinapahiram” – ongoing activities (marketing
activities, R&D, etc.)
Recognized Over Time, usually on a Straight Line Basis
Accounting for Franchise Fees (FRANCHISOR) – PFRS 15
Special rule for Continuing Franchise Fee (CFF) or sales-based royalties
Recognized as revenue when both conditions are met:
1. Related performance obligations are already satisfied
2. When or as sales occur (important factor)

IFF – Initial Franchise Fee Direct Cost Matching principle


CFF – Continuing Franchise Indirect Cost Expense Immediately
Revenue (Total)
Fee
Interest

Accounting for Franchise Fees (FRANCHISOR) – PRE-PFRS 15


Revenue if both requirements are met:
1. Substantial performance (PFRS 15: Satisfaction of PO)
2. Down payments or any payments made are non-refundable (PFRS 15: Part of Variable Consideration)
Revenue
• If collection is reasonably assured – ACCRUAL
• If collection is NOT reasonably assured – INSTALLMENT
• Only collections are recognized as revenue (of Principal)
Under PFRS 15, NOT A CONTRACT = NO REVENUE

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