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AutoFix Solutions Inc. $($AutoFix Solutions$)$ is a national franchisor providing automotive

repair and maintenance services. It reports under IFRS.

AutoFix Solutions owns the franchise rights to the AutoFix brand and operates

franchises across the country. The company$$s controller, Amy, has been asked by the

chief financial officer $($CFO$)$ to determine the appropriate accounting treatment for a

recent franchise sale for the year ended December $31,2024($see Appendix III$).$

As Amy is currently very busy with other matters, she has asked you to help prepare

notes for a meeting with the CFO to explain how AutoFix Solutions should account for

this transaction. As part of the analysis, prepare the journal entries that would be

recorded for the $2024$ fiscal year and the $5$ step revenue recognition process.

Appendix III

On January $1,2024,$ AutoFix Solutions sold the rights to open a new franchise to Sarah.

The franchise agreement is for six years. The contract requires Sarah to pay an initial

upfront fee of $$300,000$ on January $1,2024,$ with a quarterly payment of $$40,000$ due on

March $31,$ June $30,$ September $30,$ and December $31$ of each year from $2024$ to $2029.$

The contract specifies that the initial fee and the $24$ quarterly payments of $$40,000$

cover the startup repair equipment $($delivered February $15,2024)$ and AutoFix Solutions'

services, which include product development and ongoing franchisee support.

Additionally, there is a recurring fee equal to $6\%$ of Sarah$$s gross franchise sales,

payable monthly, to cover marketing and advertising expenses for the franchise.

The stand$-$alone price for the equipment is $$480,000.$ While there is no separate pricing

for product development and ongoing support services, AutoFix Solutions estimates the

cost at $$50,000$ per year per franchise location, with a typical markup of $25\%$ charged

to franchisees.

AutoFix Solutions has determined that the credit risk rate associated with Sarah is $8\%.$