FRANCHISE ACCOUNTING

REVENUE RECOGNITION

REVENUES US GAAP (point in time) IFRS

INITIAL FRANCHISE *Requisites: *Requisites
FEE REVENUE 1. With Substantial (at least 90%) 1. Satisfaction of performance
Performance of services obligation
2. Non-refundable
3. Period of return has expired
Contingent Franchise 1. With substantial (at least 90%) 1. Satisfaction of performance
fee revenue performance of services obligation
2. Non-refundable 2. Sale of franchise occurs
3. Period of return has expired
4. Sale of franchise occurs
Interest Revenue Based on passage of time (under IAS 18) Using effective interest method
(under IAS 18)

Note:

Initial Franchise fee: xxxx

Contingent Franchise Fee xxxx

Total Franchise Fee revenue xxxx

Interest Income xxxx

Total Franchise Revenue xxxx

Recognition of Gross profit in Franchise

Collectibility Method Treatment When realized

Reasonably Assured Accrual Basis Recognition GP at full Immediately
amount
Not Reasonably Installment Method GP is deferred When there’s
Assured collection

Accounting the Balance of IFF

Type of Note Measurement Interest Revenue

*If Interest Bearing Face Value Face Value * NR
*If Noninterest Bearing Present Value CA * NR
Step 1: Determine if IFF shall be recognized

Step 2: If IFF is to be recognized, determine the method in recognizing GP

Step 3: Determine the period asked

Accrual Basis

Cash (for downpayment) xxx

(+) Notes Receivables (for balance) xxx
Initial Franchise Fee xxx
(-) Direct Cost – Initial Service (xxx)
Gross Profit xxx
(+) Contingent franchise fee xxx
(+) Interest revenue xxx
Total franchise Revenue xxx
(-) Indirect Cost- Initial Service (xxx)
(-) All cost- Continuing Service (xxx)
Net Income of Franchisor xxx

Installment Method

Cash (for downpayment) xxx

(+) Notes Receivables (for balance) xxx
Initial Franchise Fee xxx
(-) Direct Cost – Initial Service (xxx)
Deferred Gross Profit xxx

Cash (for down payment), year sale xxx

Principal Collection of NR xxx
Total Collection xxx
(X) DGP RATE %
REALIZED GROSS PROFIT xxx
(+) Contingent franchise fee xxx
(+) Interest revenue xxx
Total franchise revenue xxx
(-) Indirect Cost – initial service (xxx)
(-) All cost – Continuing Service (xxx)
Net Income of Franchisor xxx