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 P800,000 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 P400,000. · To deliver 20,000 units of raw materials to the franchisee with stand-alone selling price of P500,000. · 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 P100,000. On June 30, 2018, the entity completed the construction of the franchisee’s stall. On December 31, 2018, the entity was able to deliver 6,000 units of raw materials to the franchisee. For the year ended December 31, 2018, the franchisee reported sales revenue amounting to P200,000. The entity had determined that the performance obligations are separate and distinct from one another. What is the amount of the nonrefundable upfront fee to be allocated to the construction of the franchisee’s stall? A.320,000 B.400,000 C.240,000 D.500,000
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 P800,000 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 P400,000.
· To deliver 20,000 units of raw materials to the franchisee with stand-alone selling price of P500,000.
· 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 P100,000.
On June 30, 2018, the entity completed the construction of the franchisee’s stall. On December 31, 2018, the entity was able to deliver 6,000 units of raw materials to the franchisee. For the year ended December 31, 2018, the franchisee reported sales revenue amounting to P200,000.
The entity had determined that the performance obligations are separate and distinct from one another.
What is the amount of the nonrefundable upfront fee to be allocated to the construction of the franchisee’s stall?
A.320,000
B.400,000
C.240,000
D.500,000
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