Pasta Inn charges an initial fee of P1,600,000 for a franchise, with P320,000 paid when the agreement is signed and the balance in four annual payments. The present value of the annual payments, discounted at 10%, is P1,014,000. The franchisee has the right to purchase P60,000 of kitchen equipment and supplies for P50,000. An additional part of the initial fee is for advertising to be provided by Pasta

Inn during the next five years. The value of the advertising is P1,000 a month. Collectibility of the payments is reasonably assured and Pasta Inn has performed all the initial services required by the contract. How much revenue from franchise fee be recognized when the agreement is signed?

a. Zero. c. P1,590,000

b. P1,264,000 d. P1,600,000

 Chris Health Club enters into a contract on January 1, 20x8 with customers for one year access to gym, swimming pool and tennis courts for P120,000 per year. Chris also charges a P18,000 nonrefundable initiation fee to compensate for the administrative tasks to register the customer. How many performance obligations exist in the contract? 

a. 0 c. 2

b. 1 d. 3

The total transaction price of this arrangement - non-refundable upfront fee should be:

a. None c. P600,000

b. P18,000 d. P618,000

On January 2, 20x8 (time of sale/point in time), the recognize revenue amounted to:

a. None c. P 18,000

b. P11,500 d. P138,000

On December 31, 20x8, the recognize revenue amounted to:

a. P11,500 c. P120,000

b. P18,000 d. P138,000

Assume, however, that Chris allows customers to renew their membership without having to pay another 

initiation fee upon renewal. Further, Chris determines that its customers, on average, remain members 

for 5 years, the recognize revenue for 20x8 amounted to:

a. P 18,000 c. P123,600

b. P100,000 d. P618,000

Assume that a customer enrolls in AAA's Premier Membership, which provides 12 months of roadside 

assistance for P120. On August 1, 20x6, a customer purchases a contract that runs from that date 

through July 31, 20x7. Given that roadside assistance requests occur equally throughout the contract 

period, AAA uses "proportion of time" as its measure of progress toward completion. The amount of 

sales revenue on August 1?

a. Zero c. P 120

b. P 10 d. P1,440

Using the same information in No. 7, the sales revenue on December 31 amounted to:

a. Zero c. P 60

b. P 50 d. P120

Answer rating: 100% (QA)

1 Franchise fee revenue should be recognized at the present value of the fee The present value of th... View the full answer