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How much is the franchise revenue

    Assignment Instructions

    Assignment ID: FG133136237

    Question – On January 1, 2022, ABC Company granted a franchise to a franchisee. The franchise agreement required the franchisee to pay a nonrefundable upfront fee in the amount of P600,000 under the following payment scheme:

    January 1, 2022 P100,000

    January 1, 2023 300,000

    January 1, 2024 150,000

    January 1, 2025 25,000

    January 1, 2026 25,000

    The franchise agreement also provides that interest of 2% per annum will be paid every January 1 based on the unpaid balance. The effective interest rate is 2.5%.

    Under the franchise agreement, the franchisor is required to do the following:

    Construct the franchisee’s stall with stand-alone price of P400,000.

    Deliver equipment and supplies to the franchisee with stand-alone price of P150,000.

    Allow the franchisee to use the tradename for a period of five years starting 2022 with stand-alone price of P250,000.

    ABC Company considers each of the following item above is a distinct performance obligation that is satisfied at a point in time.

    Under the franchise agreement, the tradename will be transferred at the inception of the contract. The franchisee’s stall was completed on February 1, 2022 while the equipment and supplies were delivered on February 2, 2022.

    Round off all present value factors to four decimal places. Round off all final answers to the nearest peso.

    1. How much is the franchise revenue for 2022?

    ABC Construction Company began work on a contract in 2022 and completed the contract in 2023. The total contact price was P8,500,000. Information related to the construction project are as follows:

     

    2022

    2023

    Costs incurred during the year

    P1,200,000

    P6,250,000

    Estimated costs to complete

    4,800,000

    Progress billings during the year

    1,450,000

    7,050,000

    Collections during the year

    800,000

    6,000,000

    2. How much is the revenue to be recognized in 2022?

    3. How much is the contract asset (contract liability) or excess of CIP over total progress billings as of December 31, 2022?

    4. How much is the gross profit to be recognized in 2023?

    5. How much is the revenue to be recognized in 2023?

    6. How much is the receivable balance as of December 31, 2022?

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