ABC sells franchise arrangement throughout La Trinidad and Itogon. Under a franchise agreement, ABC receives 1,000,000 in exchange for satisfying the following separate performance obligations: franchisees have a ten-year right to operate as an ABC retail establishment once it started its operation; franchisees receive an ABC building and necessary equipment; franchisees receive initial training and certification as an ABC retail. The 1,000,000 is payable with a down payment of P500,000 on August 1, 2021 with the balance will be payable in five equal annual payments with an interest of 10% starting January 1, 2022. The stand-alone selling price of the initial training and certification is P100,000 and P400,000 for the building and equipment. ABC estimates that the stand-alone selling price of the ten-year right to operate as a franchise using the residual anproach ABC received p500 000 on August 1 2021 from DDD which represent the collection from the

ABC sells franchise arrangement throughout La Trinidad and Itogon. Under a franchise agreement, ABC receives 1,000,000 in exchange for satisfying the following separate performance obligations: franchisees have a ten-year right to operate as an ABC retail establishment once it started its operation; franchisees receive an ABC building and necessary equipment; franchisees receive initial training and certification as an ABC retail. The 1,000,000 is payable with a down payment of P500,000 on August 1, 2021 with the balance will be payable in five equal annual payments with an interest of 10% starting January 1, 2022. The stand-alone selling price of the initial training and certification is P100,000 and P400,000 for the building and equipment. ABC estimates that the stand-alone selling price of the ten-year right to operate as a franchise using the residual anproach ABC received p500 000 on August 1 2021 from DDD which represent the collection from the

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 Jan. 1, 2020, ABC Corporation entered into a franchise agreement with a P570,000 cash payment as initial franchise fee. The fee covers the initial services with the following stand alone prices: Location Identification - P 150,000, Manager Training - P 50,000, Market Study - P 200,000, Employee Training P 200,000. ABC charges a mark-up on cost of 25% when it computes the stand-alone prices of all its services. On Jan 31, 2020, ABC has completed the location identification and market study. How much is the gross profit from the franchise to be reported in the income statement for January 2020 ?
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