Activity - Franchise Operations PDF

Preview

Summary

Download Activity - Franchise Operations PDF

Description

Activity

PROBLEM SOLVING (5 items x 5 points) CASE 1 On January 1, 20x1, Marc Company enters into a contract with a customer to transfer a license. The initial franchise fee is P200,000, payable as follows: 20% cash down payment upon signing of the contract, and the balance is payable in four (4) equal annual installments starting December 31, 20X1. The appropriate discount rate is 10%. The contract also requires Marc Company to transfer equipment to the customer. The equipment has a cost of P30,000 and a stand-alone selling price of P50,000. The license has a stand-alone selling price of P38,000. Marc Company regularly sells the license and the equipment separately. The equipment is transferred to the customer on January 15, 20x1, while the license is transferred to the customer on February 1, 20x1. REQUIRED: Compute the following: 1. Total transaction price

P166,795

2. Transaction price allocated to license

P72,025

3. Transaction price allocated to equipment

P94,770

4. Franchise fee revenue Revenue recognized on January 15,20x1

P94,770

Revenue recognized on February 1,20x1

P72,025

Answer/Solution: Cash Down payment (P200,000x20%)

P40,000

PV of note payable: [(200,000x80%)/4]x3.16987

126,795

Total Transaction price

P166,795

Performance

Stand-alone

Allocation

Transaction Prices

selling prices P38,000

(166,795x38,000/88,000

P72,025

Equipment

50,000

) (166,795x50,000/88,000

94,770

Total

P88,000

Obligation License

) P166,795

CASE 2 Nori Restaurant sold a fast-food restaurant franchise to Irish. The sale agreement, signed on January 20x1, called for a P200,000 down payment plus two (2) P100,000 annual payments representing the value of initial franchise services rendered by Nori Restaurant. In addition, the agreement requires the franchisee to pay 10% of its gross revenues to the franchisor. The restaurant opened early in 20x1 and its sales for the year amounted to P1,250,000. The prevailing rate for a similar note was 12%. REQUIRED: Compute the following: (Round off PV factor in four (4) decimal places) 5. Total franchise fee revenue

P494,010

Solution: Initial franchise fee Down payment

P200,000

PV of two annual payment

169,010

P369,010

Continuing franchise fee (P1,250,000x10%)

125,000

Total franchise fee revenue

P494,010

6. Total revenue

P169,010

Solution: Annual payment

P100,000

PV of Annuity of P1@12%, n=2

1.6901

Total revenue

P169,010...