Manong Nilaga, a renowned franchisor under McJabi Group of Companies, sells franchise arrangements to individual businessmen. Under a franchise agreement, Manong Nilaga receives P10,000,000 in exchange for satisfying the following separate performance obligations: franchisees have a ten-year right to operate as a Manong Nilaga restaurant. franchisor submits a feasibility study for the strategic location of the business franchisees receive initial training and certification, and franchisees receive necessary specialized equipment. The stand-alone selling price are P500,000 for the initial training and certification, and P1,500,000 for the specialized equipment. The feasibility study usually costs P200,000 for Manong Nilaga. The franchisor expects a normal profit of 25% on most of its services. The franchisor also estimates the stand-alone selling price of the ten-year right to operate as a Manong Nilaga restaurant using the residual approach. Manong Nilaga received P2,000,000 on March 1, 2021 from a businessman and accepted an interest-bearing note receivable for the rest of the franchise price. An additional provision was added between Manong Nilaga and the businessman for a 2% royalty on the business’ annual revenue which is payable every January 10 of the subsequent year. Manong Nilaga has delivered the equipment and finished the feasibility study, training and certification on June 30, 2021, the date of the opening of the franchisee’s business. The businessman’s ten-year right to operate as a Manong Nilaga restaurant will commence on June 30 as well. The businessman reported revenue of P2,500,000 on the franchise as of December 31, 2021. -How much franchise revenue would Manong Nilaga recognize in the year ended December 31, 2021, with respect to the franchise agreement? (Ignore any interest on the note receivable.)
Manong Nilaga, a renowned franchisor under McJabi Group of Companies, sells franchise arrangements to individual businessmen. Under a franchise agreement, Manong Nilaga receives P10,000,000 in exchange for satisfying the following separate performance obligations:
- franchisees have a ten-year right to operate as a Manong Nilaga restaurant.
- franchisor submits a feasibility study for the strategic location of the business
- franchisees receive initial training and certification, and
- franchisees receive necessary specialized equipment.
The stand-alone selling price are P500,000 for the initial training and certification, and P1,500,000 for the specialized equipment. The feasibility study usually costs P200,000 for Manong Nilaga. The franchisor expects a normal profit of 25% on most of its services. The franchisor also estimates the stand-alone selling price of the ten-year right to operate as a Manong Nilaga restaurant using the residual approach.
Manong Nilaga received P2,000,000 on March 1, 2021 from a businessman and accepted an interest-bearing note receivable for the rest of the franchise price. An additional provision was added between Manong Nilaga and the businessman for a 2% royalty on the business’ annual revenue which is payable every January 10 of the subsequent year. Manong Nilaga has delivered the equipment and finished the feasibility study, training and certification on June 30, 2021, the date of the opening of the franchisee’s business. The businessman’s ten-year right to operate as a Manong Nilaga restaurant will commence on June 30 as well.
The businessman reported revenue of P2,500,000 on the franchise as of December 31, 2021.
-How much franchise revenue would Manong Nilaga recognize in the year ended December 31, 2021, with respect to the franchise agreement? (Ignore any interest on the note receivable.)
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