Please provide solutions on each answer. Thank you

Multiple Choice

1. Continuing franchise fees should be recorded by the franchisor

a. In accordance with the accounting procedures specified d. in the franchise agreement.

b. As revenue when earned and receivable from the franchisee.

c. As revenue only after the balance of the initial franchise fee has been collected.

d. As revenue when received.

2.Franchise fee revenue shall be recognized when all material services or conditions have been substantially performed or satisfied by the franchisor. Substantial performance means*

a. Substantially all initial services have been performed.

b. No other material conditions or obligations exist.

c. All of these define substantial performance by the franchisor.

d. Franchisor has no remaining obligation or intent to refund money or forgive unpaid debt.

3.What is the measurement of franchise revenue recognized form franchise agreement?*

a. Fair value of the consideration received or receivable.

b. Nominal amount of the consideration received or receivable.

c. Book value of the consideration received or receivable

d. Carrying amount of the consideration received or receivable.

4. Under IFRS 15, when shall a franchisor recognize revenue from contingent franchise fee or revenue for a sales-based royalty?*

a. When the sales of the franchisee occurs.

b. Either when the sales of the franchisee occurs or when the performance obligation to which some or all of the contingent franchise fees or sales-based royalty has been satisfied or partially satisfied.

c. When the sales of the franchisee occurs AND when the performance obligation to which some or all of the contingent franchise fees or sales-based royalty has been satisfied or partially satisfied.

d. When the performance obligation to which some or all of the contingent franchise fees or sales-based royalty has been satisfied or partially satisfied.

5.IFRS 15 provides that initial franchise fee shall be recognized as revenue over time (percentage of completion method) if any one of the following criteria provided below is met. Which of the following indicator shows that the initial franchise fee shall be recognized as revenue at a point in time instead over time?*

a. When the franchisor's performance does not create an asset with alternative use to the franchisor and the franchisor has an enforceable right to payment for performance completed to date.

b. When the franchisor's performance creates or enhances and asset that the franchisee controls as the asset is created or enhanced.

c. When the franchisee simultaneously receives and consumes the benefits provided by the franchisor's performance as the franchisor performs.

d. When the franchisee has legal title to the franchise and has the significant risks and rewards of ownership of the franchise.

6.Under IFRS, how many an entity satisfy a performance obligation under in a contract with customers?*

a. None of the choices

b. Satisfaction of performance obligation over time.

c. Satisfaction of performance obligation over time or satisfaction of performance obligation at a point in time.

d. Satisfaction of performance obligation at a point in time.

7.Under IFRS 15, how shall revenue from contracts with customers such as revenue from initial franchise fee be recognized by the franchisor?*

a. Upon receipt of the initial franchise fee by the franchisor

b. Upon signing of the franchise agreement.

c. When the franchisor satisfies the performance obligation under the franchise agreement.

d. Applying the legality over the substance of the transaction.

Problem 1

On January 1, 2019, IVAN (Franchisee) entered into a franchise agreement with BAM, Inc. to sell ACCT products. The agreement provides of an initial franchise fee of P30,000,000, payable as follows: P18,000,000 cash to be paid upon signing of the contract, and the balance in five equal annual payments every December 31 starting 2019. IVAN signs 12% interest bearing note for the balance. The agreement further provides that the franchisor will assist the franchisee in locating the business site, designing and supervising the construction of the building, and training of management and employees. The agreement also provides that the franchisee must pay a continuing franchise fees equal to 10% of its monthly gross sales.

On June 30, 2019, the franchisor completed the initial services required by the contract at a costs of P8,000,000, of which 25% was indirect. The franchisee commenced business operations on July 5, 2019. The gross sales reported to the franchisee to the franchisor are: July sales P150,000 August sales P180,000; September sales P270,000; October sales P200,000: November sales P580,000; and December sales P720,000.

1.Compute for the NET INCOME earned during the year 2019 assuming the collectability of the note is reasonably assured

2.Compute for the NET INCOME earned during the year 201 assuming the collectability of the note is not reasonably assured

Problem 2

Jollijeep sells franchise for initial fee of P500,000. This covers site selection, training, computer and accounting software over the first 4 year. On April 30, 2019, Mcdow signed a franchise agreement, paying 10% down payment with balance due over 5 years evidenced by 10% interest bearing note. The agreement provides that Jollijeep has the option to purchase within 4 years to acquire McDow's business. The collectability of the note is certain, refund period has expired and all the obligations were performed by Jollijeep. In fact, Jollijeep rendered service to the franchisee amounting to P200,000.

1.If it is certain that Jollijeep will exercise the option to purchase the business, how much will be recognized as franchise revenue in 2019?

2.If Jollijeep exercised the option and acquired the franchise by paying P120,000 and the 4^th year, how much is the gain or (loss) on option to purchase the outlet?

Problem 3

On March 1, 2019, JETT CO., Inc., entered into a franchise agreement with Mr. Tang a wellknown businessman. The franchisee paid P300,000 and gave 200,000, 12%, 5 year note payable with interest due on March 1. On December 31, 2019, the franchisee decided not to open the outlet despite the substantial performance made as of June 30, 2019. On December 31, 2019, JETT CO.

cancelled the franchisee's note and refunded P180,000, that includes interest earned on the note.

1.On December 31, 2019, how much will JETT CO. recognize as the gain or (loss) from repossessed franchise?

2.How much is the amount of franchise revenue on June 30, 2019?

Problem 4

MOLEY Company sells a franchise with initial franchise fee of P70,000. A down payment of P20,000 cash is required, with the balance covered by issuance of a P50,000, 10% note payable in five equal annual instalments.

1.If all material services have been substantially performed, collectability of note is reasonably assured, but the refund period has not expired, what is the journal entry to record the transaction?

2.If all material services have been substantially performed, collectibility of note is reasonably assured, and the refund period has been expired, what is the journal entry to record the transaction?

3.If all material services have been substantially performed, collectibility of the non interest bearing note, with implicit rate of 10%, is reasonably assured, and the refund period has been expired, what is the journal entry to record the transaction?

Problem 5

CORCI COFFFEE Company charges an initial franchise fee of P90,000 to Mrs. Mocha for the right to operate as a franchisee of CORCI COFFEE. Of this amount P180,000 is payable when the agreement is signed and the balance is payable in 4 equal instalment 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 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 if the down payment is non-refundable, 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 non-refundable, the collectability of the note is not reasonably assured and there is substantial performance of services?

4.How much is the franchise revenue if the down payment is non-refundable, the collectability of the note is not reasonably assured and there is substantial performance of services equivalent to the down payment?

Problem 6

On January 1, 2019, SARIPULPY COMPANY sells a franchise to Mr. Jam for an initial franchise fee of 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 instalments starting December 31, 2019. 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 RGP initial franchise if the down payment is non-refundable, the collectability of the note is not reasonably assured and the franchiser has performed all the services required?