A. On January 1, 2022, BTS Franchising Company entered into a franchise agreement with Jungkook.

The agreement provides that Jungkook is to pay a non-refundable down payment of P110,000, and
five annual payments of P100,000 each, with the first payment due on January 1, 2023.
Furthermore, the contract provides that BTS must perform initial services in exchange of the initial
franchise fee, after which Jungkook will pay a continuing franchise fee equivalent to 2% of her total
net sales revenue.

Jungkook pays the down payment and signs a non-interest bearing note on the date of contract.
His credit rating indicates states that she can borrow money at 8% interest for a loan of this type
(use 2 decimal places for the PV factor). On the other hand, BTS Franchising Company incurred
P95,500 direct cost and P5,000 indirect cost in the process of rendering the initial services
required in the contract. The initial services were completed on July 1, 2022, and Jungkook was
able to earn P800,000 net sales revenue in the 6 months of operation during 2022. BTS
continued rendering services to Jungkook after July 1 and, as a result, incurred P1,000 and P500
direct and indirect costs, respectively.

1. Assuming the collectability of the note is reasonably assured, how much is the net income of
BTS Franchising Company for the year ended December 31, 2022 (IAS 18)?

2. Assuming the collectability of the note is not reasonably assured, how much is the net income
of BTS Franchising Company for the year ended December 31, 2022 (IAS 18)?
B. On January 1, 2022, KDR Inc. signed a franchise agreement to grant a license to Donya Kianne for a
term of 3 years commencing on the date of contract. The payment terms indicated on the contract
called for a non-refundable P305,000 down payment and a 9% interest-bearing promissory note
with face value of P155,000 and is payable in three equal annual installments, with the first payment
due on December 31, 2022.

1. What if the agreement granted Donya Kianne the right to use the intellectual property, how
much is the total revenue recognized by KDR Inc (IFRS 15)?

2. What if the agreement granted Dony a Kianne the right to access the intellectual property, how
much is the total revenue recognized by KDR Inc (IFRS 15)?
C. On January 1, 2021, ITZ Inc. entered into a franchise agreement with Jaypee for an initial franchise
fee of P750,000 payable as follows: P250,000 down payment payable immediately and two
P250,000 annual payments evidenced by a non-interest bearing note, with the first payment due on
December 31, 2021. With an effective rate of 9%, the present value of the note is P439,750.

The following excerpts were taken from the franchise contract:

 The franchise license is granted to Jaypee for a term of 5 years. Jaypee has the right to any
subsequent modification made by ITZ Inc. to the franchise license. The license has an
observable stand-alone selling price of P319,875.
 ITZ Inc. is to construct a food stall for Jaypee. The food stall is fully customized for Jaypee,
thus it has no alternative use for the franchisor. The food stall has no observable stand-alone
selling price but has an estimated cost of P85,300 and a normal profit of 20% based on sales.
 ITZ Inc. must conduct training for the employees of Jaypee.

It was determined that the three performance obligations were separate and distinct from one
another. By the end of the year, the food stall was 80% completed as to construction and the
training was 100% accomplished.

1. Assuming that the stand-alone selling price of the training of the employees was highly
variable, how much is the total revenue recognized by the franchisor for the year ended
December 31, 2021?
2. Assuming that the stand-alone selling price of the training of the employees amounted
to P639,750 based on the adjusted market assessment approach, how much is the total
revenue recognized by the franchisor for the year ended December 31, 2021?
D. On January 1, 2021, Your Song Franchising entered into a franchising contract which granted Luhan
a franchise license for an initial franchise fee of P5,175,000. The term of the agreement will last for 4
years from the date of contract. Luhan paid a non-refundable down payment amounting to
P1,035,000 and signed a non-interest bearing note for four annual payments of P1,035,000, with the
first installment due on December 31, 2021. With the effective rate in the market of 16%, the
present value of the note is computed as P2,898,000. In addition, Luhan is to pay an annual sum to
franchisor equivalent to 5% of his net sales. Direct costs incurred by Your Song Franchising to fulfill
the contract amounted to P1,552,500, while indirect costs totaled P100,000. Net sales of Luhan
amounted to P2,000,000 for the year.

1. Assume that the agreement allowed Luhan to obtain substantially all of the benefits from the
license at the point in time at which it was granted, how much is the franchisor’s net income for
the year ended December 31, 2021?
2. Assume that the agreement provides that Luhan is granted the right to obtain any benefits from
further modification made to the intellectual property of the franchisor, how much is the
franchisor’s net income for the year ended December 31, 2021?