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Assignment Franchise

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Rhianne Manicap
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31 views

Assignment Franchise

Uploaded by

Rhianne Manicap
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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RHIANNE KAYE G.

MANICAP BSAC-3 CODE 010

Problem 1:
XY, Inc., franchisor, entered into a franchise agreement with AB, Inc.,
franchisee on July 1, 2020. The initial franchise fees agreed upon is
P850,000, of which P150,000 is payable upon signing and the balance to be
covered by a non-interest bearing note payable in four equal annual
installments. It was agreed that the down payment is not refundable,
notwithstanding lack of substantial performance of services by franchiser.
Probability of collection is likely.
The following expenses were incurred:
Initial services: Continuing Services:
Direct Cost 235,000 Direct Cost 23,900
Indirect Cost 64,000 Indirect Cost 9,000

The management of AB has estimated that they can borrow loan at the rate
of 12% (PV factor 3.04). The franchisee commenced its operations on July 31,
2020. A continuing franchise fee equal to 5% of its monthly gross sales was
also specified in the contract. AB reported gross sales of P950,000 for the
month.
Requirements:
Compute for the net income to be reported for 2024 using:
a. Old Accounting Rule
REVENUES:
Downpayment 150,00
0
Initial Franchise Fee (700,000/4)*(6/12) 87,500
Continuing Franchise Fee 950,000 * 5% 47,500
TOTAL REVENUE 285,000
EXPENSES:
Initial Services Direct Cost 235,000/2 117,50
0
Initial Services Indirect Cost 64,000/2 32,000
Continuing Services Direct Cost 23,900 * (6/12) 11,950
Continuing Services Indirect 9000 * (6/12) 4,500
Cost
TOTAL EXPENSES (165,950)
NET INCOME/(LOSS) 119,050

ANSWER: NET INCOME 119,050


b. PFRS 15
REVENUES:
Downpayment 150,00
0
Initial Franchise Fee (700,000/4)*(6/12) 87,500
Continuing Franchise Fee 950,000 * 5% 47,500
TOTAL REVENUE 285,000
EXPENSES:
Initial Services Direct Cost 235,000/2 117,50
0
Initial Services Indirect Cost 64,000/2 32,000
Continuing Services Direct Cost 23,900 * (6/12) 11,950
Continuing Services Indirect 9000 * (6/12) 4,500
Cost
TOTAL EXPENSES (165,950)
NET INCOME/(LOSS) 119,050

ANSWER: NET INCOME 119,050


RHIANNE KAYE G. MANICAP BSAC-3 CODE 010

Problem 2:
On January 1, 20x1, Sundial Co. enters into a contract with a customer to
transfer a license.
 The initial franchise fee is ₱100,000 payable as follows: 20% cash down
payment upon signing of the contract and the balance is payable in 4
equal annual installments starting December 31, 20x1. The
appropriate discount rate is 12%.
 The contract states that the initial franchise fee consists of ₱30,000
consideration for the equipment that Sundial Co. will transfer to the
customer and the ₱70,000 balance for the franchise rights.
 Sundial Co. regularly sells the equipment and the license separately.
The stand-alone selling prices are ₱40,000 for the equipment and
₱38,000 for the license.
 The license provides the customer the “right to use” Sundial’s
intellectual property as it exists at the point in time at which the
license is granted.
 The equipment is transferred to the customer on January 15, 20x1,
while the license is transferred to the customer on February 1, 20x1.

Requirement:
a. Compute for the amount of revenue from the contract.
Transaction Price:
Cash Downpayment 100,000 x 20% 20,000
PV of Note Receivable (100,000 x 20,000
80%) /4
(((1.12)^4)-1)/.12 3.03734934675 60,747
80,747

Performance Stand-alone Allocation Allocated


Obligations Selling
Prices
Equipment 40,000 80,747 x (40,000/78,000) 41,409
License 38,000 80,747 x (38,000/78,000) 39,338
TOTALS 78,000 80,747

ANSWER: 80,747
b. Compute for the profit to be recognize in the 20x1.
80,747 + 7,290 = 88,037

ANSWER: 88,037
c. Prepare Journal Entries

DATE INTEREST PRINCIPAL AMORTIZATION CARRYING


INCOME REPAYMENT AMOUNT
01-01-x1 - - - 60,747
12-31-x1 7,290 20,000 12,710 48,037
12-31-x2 5,764 20,000 14,236 33,801
12-31-x3 4,056 20,000 15,944 17,857
12-31-x4 2,143 20,000 17,857 0

Jan. 01, 20x1 Cash 20,000


Notes Receivable 80,000
Contract Liability 80,747
Unearned Interest Income 19,253
Jan. 15, 20x1 Contract Liability 41,409
Revenue 41,409
Feb. 01, 20x1 Contract Liability 39,338
Revenue 39,338
Dec. 31, 20x1 Cash 20,000
RHIANNE KAYE G. MANICAP BSAC-3 CODE 010

Unearned Interest Income 7,290


Interest Income 7,290
Notes Receivable 20,000

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