On January 1, 2022, ABC Company granted a franchise to a franchisee. The franchise agreement required the franchisee to pay a nonrefundable upfront fee in the amount of P600,000 under the following payment scheme: January 1, 2022 P100,000 January 1, 2023 300,000 January 1, 2024 150,000 January 1, 2025 25,000 January 1, 2026 25,000 The franchise agreement also provides that interest of 2% per annum will be paid every January 1 based on the unpaid balance. The effective interest rate is 2.5%. Under the franchise agreement, the franchisor is required to do the following: Construct the franchisee’s stall with a stand-alone price of P400,000. Deliver equipment and supplies to the franchisee with a stand-alone price of P150,000. Allow the franchisee to use the tradename for a period of five years starting in 2022 with a stand-alone price of P250,000. ABC Company considers each of the following items above as a distinct performance obligation that is satisfied at a point in time. Under the franchise agreement, the tradename will be transferred at the inception of the contract. The franchisee’s stall was completed on February 1, 2022, while the equipment and supplies were delivered on February 2, 2022. Round off all present value factors to four decimal places. Round off all final answers to the nearest peso. How much is the franchise revenue for 2022?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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On January 1, 2022, ABC Company granted a franchise to a franchisee. The franchise agreement required the franchisee to pay a nonrefundable upfront fee in the amount of P600,000 under the following payment scheme:

January 1, 2022	P100,000
January 1, 2023	300,000
January 1, 2024	150,000
January 1, 2025	25,000
January 1, 2026	25,000

The franchise agreement also provides that interest of 2% per annum will be paid every January 1 based on the unpaid balance. The effective interest rate is 2.5%.

Under the franchise agreement, the franchisor is required to do the following:

Construct the franchisee’s stall with a stand-alone price of P400,000.
Deliver equipment and supplies to the franchisee with a stand-alone price of P150,000.
Allow the franchisee to use the tradename for a period of five years starting in 2022 with a stand-alone price of P250,000.

ABC Company considers each of the following items above as a distinct performance obligation that is satisfied at a point in time.

Under the franchise agreement, the tradename will be transferred at the inception of the contract. The franchisee’s stall was completed on February 1, 2022, while the equipment and supplies were delivered on February 2, 2022.

Round off all present value factors to four decimal places. Round off all final answers to the nearest peso.

How much is the franchise revenue for 2022?

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