On January 1, 20x20, 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, 20x20. 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, 20x20 with stand-alone selling price of P50,000. On June 30, 20x20, the entity completed the construction of the franchisee’s stall. On December 31, 20x20, the entity was able to deliver 3,000 units of raw materials to the franchisee. For the year ended December 31, 20x20, the franchisee reported sales revenue amounting to P100,000. The entity had determined that the performance obligation are separate and distinct from one another. 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, 20x20?

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 January 1, 20x20, 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, 20x20.

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, 20x20 with stand-alone selling price of P50,000.

On June 30, 20x20, the entity completed the construction of the franchisee’s stall. On December 31, 20x20, the entity was able to deliver 3,000 units of raw materials to the franchisee. For the year ended December 31, 20x20, the franchisee reported sales revenue amounting to P100,000.

The entity had determined that the performance obligation are separate and distinct from one another.

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, 20x20?

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