Accounting for Franchise Fees (FRANCHISOR) – PFRS 15
Initial Franchise Fee Apply the 5 1. Contract – Franchise Agreement step model 2. Performance Obligations (COTA-Rev) • Not distinct from one another – combined into 1 performance obligation (SIPO) • Distinct – separate performance obligations (SEPO) (if silent, SEPO) 3. Transaction Price • Consider if there is significant financing component Sale/revenue + loan Get the PV by considering the ER vs SR 4. Allocate 5. Recognize revenue • Special Rule: ▪ License/Tradename a) Right to Use – franchisor/seller gives control – usually no more ongoing activities needed (i.e., tradename is not modified anymore) Recognized @ Point in Time upon transfer of control b) Right to Access – franchisor “pinapahiram” – ongoing activities (marketing activities, R&D, etc.) Recognized Over Time, usually on a Straight Line Basis Accounting for Franchise Fees (FRANCHISOR) – PFRS 15 Special rule for Continuing Franchise Fee (CFF) or sales-based royalties Recognized as revenue when both conditions are met: 1. Related performance obligations are already satisfied 2. When or as sales occur (important factor)
IFF – Initial Franchise Fee Direct Cost Matching principle
Accounting for Franchise Fees (FRANCHISOR) – PRE-PFRS 15
Revenue if both requirements are met: 1. Substantial performance (PFRS 15: Satisfaction of PO) 2. Down payments or any payments made are non-refundable (PFRS 15: Part of Variable Consideration) Revenue • If collection is reasonably assured – ACCRUAL • If collection is NOT reasonably assured – INSTALLMENT • Only collections are recognized as revenue (of Principal) Under PFRS 15, NOT A CONTRACT = NO REVENUE