CASE 4 On January 1, 2018, an entity granted a franchise to a franchisee. The franchise agreement required the franchisee to pay a nonrefundable upfront fee in the amount of P400,000 and on-going payment of royalties equivalent to 5% of the sales of the franchisee. The franchisee paid the nonrefundable upfront fee on January 1, 2018. In relation to the nonrefundable upfront fee, the franchise agreement required the entity to render the following performance obligations: • To construct the franchisee's stall with stand-alone selling price of P200,000. • To deliver 10,000 units of raw materials to the franchisee with stand-alone selling price of P250,000. • To allow the franchisee to use the entity tradename for a period of 10 years starting January 1, 2018 with stand-alone selling price of P50,000. On June 30, 2018, the entity completed the construction of the franchisee's stall. On December 31, 2018, the entity was able to deliver 3,000 units of raw materials to the franchisee. For the year ended December 31, 2018, the franchisee reported sales revenue amounting to P100,000. The entity had determined that the performance obligations are separate and distinct from one another. 1. What is the amount of nonrefundable upfront fee to be allocated to the construction of the franchisee's stall? 2. What is the amount of revenue to be recognized in relation to the use of delivery of raw materials for the year ended December 31, 2018?
CASE 4 On January 1, 2018, an entity granted a franchise to a franchisee. The franchise agreement required the franchisee to pay a nonrefundable upfront fee in the amount of P400,000 and on-going payment of royalties equivalent to 5% of the sales of the franchisee. The franchisee paid the nonrefundable upfront fee on January 1, 2018. In relation to the nonrefundable upfront fee, the franchise agreement required the entity to render the following performance obligations: • To construct the franchisee's stall with stand-alone selling price of P200,000. • To deliver 10,000 units of raw materials to the franchisee with stand-alone selling price of P250,000. • To allow the franchisee to use the entity tradename for a period of 10 years starting January 1, 2018 with stand-alone selling price of P50,000. On June 30, 2018, the entity completed the construction of the franchisee's stall. On December 31, 2018, the entity was able to deliver 3,000 units of raw materials to the franchisee. For the year ended December 31, 2018, the franchisee reported sales revenue amounting to P100,000. The entity had determined that the performance obligations are separate and distinct from one another. 1. What is the amount of nonrefundable upfront fee to be allocated to the construction of the franchisee's stall? 2. What is the amount of revenue to be recognized in relation to the use of delivery of raw materials for the year ended December 31, 2018?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:CASE 4
On January 1, 2018, an entity granted a franchise to a franchisee. The franchise
agreement required the franchisee to pay a nonrefundable upfront fee in the amount of
P400,000 and on-going payment of royalties equivalent to 5% of the sales of the
franchisee. The franchisee paid the nonrefundable upfront fee on January 1, 2018.
In relation to the nonrefundable upfront fee, the franchise agreement required the entity
to render the following performance obligations:
• To construct the franchisee's stall with stand-alone selling price of P200,000.
• To deliver 10,000 units of raw materials to the franchisee with stand-alone selling
price of P250,000.
• To allow the franchisee to use the entity tradename for a period of 10 years starting
January 1, 2018 with stand-alone selling price of P50,000.
On June 30, 2018, the entity completed the construction of the franchisee's stall. On
December 31, 2018, the entity was able to deliver 3,000 units of raw materials to the
franchisee. For the year ended December 31, 2018, the franchisee reported sales
revenue amounting to P100,000.
The entity had determined that the performance obligations are separate and distinct
from one another.
1. What is the amount of nonrefundable upfront fee to be allocated to the construction of
the franchisee's stall?
2. What is the amount of revenue to be recognized in relation to the use of delivery of
raw materials for the year ended December 31, 2018?
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