JOLLIBEE FOOD CORP.

JFC’s System Existing in the Philippines

The Problem

The current system used by Jollibee Corporation is well-established. They employ a manual
approach for inventory counts in storage. Each record in the manual inventory system must be
manually updated and maintained, which raises the possibility of human mistake. Because
inventory sheets can be lost, destroyed, or updated over time, this method is also vulnerable to
data loss.

The Solution

A computerized record of the things going in and out of storage is one of the suggested
methods for inventory control. Many consumers are unfamiliar with the methods used by
computers to store data. The validity of your present data might be ruined by opening the wrong
file with outdated data or running into a data file with digital flaws. For each account in a manual
system, a separate file called a ledger is used. No other version of the information is
comparable enough to cause confusion.

Tools and method

The things that are picked up from storage to prepare and serve to clients will also be taken into
account in our proposals, which will be a computerized record of the items supplied to the
branch.
ACCOUNTING SYSTEM & AUDIT SYSTEM

Opinion

In order to determine if the promises made in franchise agreements regarding the

reimbursement of system-wide advertising expenditures are kept, we examined and validated
management's assessment. the explanation of various performance obligations. We also
examined management's assertion that the Jollibee Group is operating as a principal with
regard to the system-wide advertising costs indicated in the franchise agreements and the
manner in which these payments are shown in the consolidated statement of comprehensive
income. We examined the transition adjustments and verified the information in the notes to the
consolidated financial statements about the application of PFRS 15.

Basis for Opinion

The researchers looked at and verified management's evaluation to see if the commitments
made in franchise agreements regarding the recovery of system-wide advertising costs are
maintained. the justification of different performance requirements. Regarding the system-wide
advertising expenses specified in the franchise agreements and how these payments are
depicted in the consolidated statement of comprehensive income, we also looked into
management's claim that the Jollibee Group is acting as a principal. We looked at the transition
adjustments and checked the details regarding how PFRS 15 was applied in the notes to the
consolidated financial statements.
Accounting for Business Combination – Acquisition of SJBF LLC

According to JFC, The Jollibee Group, through its fully owned subsidiary Bee Good!, on April
17, 2018, Inc. acquired a further 45 percent stake in SJBF LLC, giving it an 85 percent
controlling stake. Based on the acquisition price allocation carried out, The Jollibee Group
recognized goodwill of P=5,345.5 million and brand and favorable leases of P=10,782.4 million.
Because it required a significant amount of management judgment and estimation to identify the
underlying acquired assets and liabilities and to determine their fair values, particularly the
acquired property and equipment, trademark, and favorable leases, we considered the
accounting for this acquisition to be a key audit matter.

Audit response of JFC; We assessed the qualifications, skills, and objectivity of the external
appraiser who created the evaluation report for the equipment and property, as well as the
external valuation expert who determined the worth of by taking into account their credentials,
pertinent expertise, and reporting obligations, trademark and advantageous leases. We
reviewed the methodology and presumptions with the help of an internal professional utilized to
determine the fair market worth of the assets, including trademarks, equipment, and favorable
leases. By using pertinent market data for the value of property and equipment as well as
advantageous leases, we analyzed the important assumptions made, such as the list prices and
adjustment factors. We also compared the fundamental presumptions used in the trademark
value, such as the revenue growth rate and the long-term growth rate.

Recoverability of Goodwill and Trademarks with Indefinite Life

As of December 31, 2018, 27.2 percent of the Jollibee Group's consolidated total assets were
made up of goodwill and trademarks with an indefinite life. multiple cash-generating units
(CGUs) that are primarily from the goodwill Acquisitions made by the Jollibee Group in the
Philippines, the People's Republic of China, Vietnam, and the United States. The Jollibee Group
is required to conduct an annual impairment test on the amount of goodwill and trademarks with
an indefinite life in accordance with Philippine Accounting Standard (PAS) 36, Impairment of
Assets. Because the amounts are substantial to the consolidated financial statements, these
yearly impairment assessments are important to our audit.

Audit response of JFC; The methodology and presumptions utilized to calculate the
recoverable values of the CGUs for goodwill and the trademarks with indefinite life were
evaluated by our internal specialist. Discount rates, long-term revenue growth rates, and
EBITDA are all included in these hypotheses. We compared the projected rates of long-term
revenue growth, projected net sales, and projected EBITDA to the CGUs' historical statistics,
and we asked management and operational staff about their plans to meet the prediction.
In addition, we compared market data with the parameters used to calculate the discount rate.
When reviewing the impairment test's weighted average cost of capital (WACC), we contrasted
it with the WACC of similar businesses where the CGUs are active. We also looked at the
Jollibee Group's disclosures on the hypotheses that have the most impact on determining the
recoverable amount of goodwill and trademarks with indefinite lives and to which the results of
the impairment test are most sensitive.

Provisions and Contingencies

The Jollibee Group is engaged in lawsuits, claims, and disputes as is customary for its line of
work. This issue is essential to our audit because it necessitates extensive managerial judgment
to estimate the possible liability resulting from various lawsuits, claims, and disputes. The
varying ways that laws and judgments are interpreted and applied result in the inherent
ambiguity about how these cases will turn out.

Audit response of JFC; We evaluated management's judgment on whether provisions for

contingencies should be recognized and the estimation of such amount with the help of our
internal specialist. We also spoke with management about the state of the lawsuits, claims, and
conflicts. Additionally, we reviewed contact with the pertinent government authorities, responses
from outside legal counsel, and any pertinent legislation and decisions on comparable issues.
By taking into account the pertinent laws, judgments, and jurisprudence, we assessed the
Jollibee Group's stance.

Recoverability of Deferred Income Tax Assets

As of December 31, 2018, the Parent Company and a few local and international subsidiaries
have deferred tax assets worth P=4,842.8 million. About 24.0 percent of that sum is related to
net excess minimal corporate income tax over regular corporate income tax and carryover of
operational losses. Based on the anticipated taxable income and taking into account the time
period in which they can be claimed in the Philippines, management calculated the
recoverability of these deferred tax assets. Because the assessment procedure necessitates the
application of management judgment, the study of the recoverability of deferred tax assets is
important to our audit. It also takes into account management's objectives and goals for
pertinent taxable entities, including the Parent Company and certain of its subsidiaries, as well
as predictions about future revenues and costs.

Audit response of JFC; Together with our internal expert, we learned how the Parent
Company and its subsidiaries calculate deferred income taxes as well as the relevant tax laws
and regulations. We assessed management's evaluation of the potential for future taxable
income in light of financial projections and tax planning. By comparing projected future taxable
revenue to authorized budgets, past growth rates of the relevant companies, and pertinent
external market data like inflation, we evaluated management's estimate. We also looked at
when future taxable and deductible temporary differences might reverse.
Adoption of PFRS 15, Revenue from Contracts with Customers

The Jollibee Group used the full retrospective method of adoption to apply the new revenue
recognition standard, PFRS 15, Revenue from Contracts with Customers, which became
effective on January 1, 2018. The Group's revenue recognition rules, method, and processes
have changed significantly as a result of the adoption of PFRS 15. The adoption of PFRS 15 is
significant to our audit because it requires the application of significant management judgment
and estimation in the following areas: (1) evaluation of whether all promises in the franchise
agreement meet the definition of distinct performance obligations; (2) determination of the
transaction price of the franchise agreement; (3) evaluation of the timing of revenue recognition;
and (4) presentation of the Jollibee Group's share in advertising expenses

Audit response of JFC; We gained insight into the Jollibee Group's procedure for putting the
new revenue recognition standard into practice, including the identification and scoping of
revenue streams. The PFRS 15 was examined. Management created the adoption documents
and accounting guidelines. In order to determine if the accounting practices for key income
streams took into consideration PFRS 15's cost requirements and five-step model, we gathered
sample contracts. We looked at example franchise agreements with an emphasis on the
performance duties, determining the transaction price, and when income is recognized in
connection to franchise fees. We looked at management's evaluation of whether the actions
taken prior to the establishment of a franchise shop constitute separate performance
responsibilities.

We evaluated and verified management's evaluation of whether the commitments made in

franchise agreements for the repayment of system-wide advertising expenses are met.
the description of several performance commitments. Additionally, we looked at management's
conclusion that the Jollibee Group is acting as a principal for the system-wide advertising fees
specified in the franchise agreements and the way these payments are included in the
consolidated statement of comprehensive income. We checked the information about the
implementation of PFRS 15 in the notes to the consolidated financial statements and tested the
transition adjustments.

References:

https://www.slideshare.net/jhoy1221/jollibee-system-proposal
https://www.yumpu.com/en/document/read/14141817/jollibee-foods-corporation-and-
subsidiaries