On January 2, 2021, A Company signed an agreement to operate as a franchisee of B for an initial franchise fee of P2,250,000 for 10 years. Of this amount, P420,000 was paid when the agreement was signed and the balance payable in four annual payments beginning on December 31, 2021. The company issued a promissory note for the balance, the relevant interest rate being 24%. Assume that substantial services amounting to P333,960 had already been rendered by B and that additional indirect franchise cost of P56,400 was also incurred. The franchisee started operations during 2021 with a total sales of P360,000. The agreement further provides that the franchisee must pay a continuing franchise fee equal to 3% of its gross sales. If needed, the PV factor is 2.40. Assuming the note is non-interest-bearing and its collection is reasonably assured, calculate the net income reported by B on the franchise for the year ended December 31, 2021. Assuming the note is interest-bearing and its collectibility is doubtful, determine the realized gross profit on the initial franchise fee for the year ended December 31, 2021.
On January 2, 2021, A Company signed an agreement to operate as a franchisee of B for an initial franchise fee of P2,250,000 for 10 years. Of this amount, P420,000 was paid when the agreement was signed and the balance payable in four annual payments beginning on December 31, 2021. The company issued a promissory note for the balance, the relevant interest rate being 24%. Assume that substantial services amounting to P333,960 had already been rendered by B and that additional indirect franchise cost of P56,400 was also incurred. The franchisee started operations during 2021 with a total sales of P360,000. The agreement further provides that the franchisee must pay a continuing franchise fee equal to 3% of its gross sales. If needed, the PV factor is 2.40.
Assuming the note is non-interest-bearing and its collection is reasonably assured, calculate the net income reported by B on the franchise for the year ended December 31, 2021.
Assuming the note is interest-bearing and its collectibility is doubtful, determine the realized gross profit on the initial franchise fee for the year ended December 31, 2021.
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