Chapter 15 FRANCHISE Introduction Franchise is a Privilege, granted by government authority, monopoly or permitting the use of Public property, usually subject to regulation, known as franchise between the government and a private company or an individual, or a privilege, often exclusive, conferied on dealer by a manufacturer, to sell the manufacturer's Products within a specified territory, known as franchise between private companies and an individual, sanctioning a AMORTIZATION OF FRANCHISE ides that intangibles with limited or finite life are amortized over aes eens aa ie assets with indefinite life are not amortized but i f t frequently. The useful life of an intangible asset is Laredo spate is no foreseeable limit tothe period over which the asset is indefinite when there ft cash flows. In other words, there are no legal, expected 10 Benen and other factors that would limit the useful lie of the contractual, competi intangible asset. SETS IMPAIRMENT OF INTANGIBLE ASSET: ides that impairment loss on an intangible ts, provides Mi ie less than the carrying amount irment of Ass* fe amount is less than the carry’ ing amount. PAS aoe essed if its recovers of is far value and value is use. Fair value The recoverable amount is the the sale ofan asset in an arm's length transaction is the amount obtainable from illing partes, less costs of depos Value in use bene knowledgeable Or ash flows expected tobe derived from an asset luc Oo! is the present v#cosrorarmscnse Sepa tue om ee Tie sata i etn wi te arc a Se gies, pt arama se ede pve aa of NC 3) rps le Seg rss hing oe, a» el " San este a and triting employees, and TN pevxurascocaon cette el Ce ee mo of them maybe soled ifthe elements are etic cas sees Mar otenane ion conte ascet ata Prac Fe i psn peed there th a co! fs in a Me cobleoee treme meapiton pcb Typialy, te fake Gaps mis! tno re gt ose Ue och sae at pr fe pepe sries, Smet hese os ae poy may ean be opcaly ey nce lnporm nie rcehebl ep Theale plo ae nlafed i the ageemen pels in rd rerwoneneg te dec of acing ageemen, franchisor fen pl ei fem es vete viet be monetary ass were ree ne ‘coef useable oneend fading of ses FSD Sine! AS va involucel and specifics tht no een 1 # ‘revere prior 1 subuandal performance of the services cnet ae ‘Thus, any monetary assets received should be offset by 2 été lt cor, nd ny ot etd othe Services rendered shoul te sel ei a, xy thatch eee cost al ‘ee ined ational reed ot Om oars cheve. vente sould be recognized sing ie ese pb of es alton ceria ntl eth te claston oft notes reason 08 nn ibe te can he come 1s frames pera Franchie Fee tui the poi payment made by he Faehine the ance agree based on he fami operat Th poe st 1 form part the cot Fach, seh hi hibit pense:a hapten 15 MULTIPLE CHOICE QUESTIONS. PROB. 1S1(AICPAY wich of he fwing sould be expensed as INCUTE By te fc Coes See pay pe : © Eo aun an aston ; Bemeimecvorreese ite PROB. 1S-2,(Adapted) ten Aire pl sitine gti at Newark nteration tx Forno ins pit ot fre yas: However, Noes ha ea tnd right 1 extend the rights every te years for an indefinite period ef tn, Over what period of time should Northern amortize the gate rights? oe + Spee i ie © yen i Noman ‘PROB. 18-3 (Adapted) Uefa cones woes oon os rie othe end ofits estate wef slicer ale ect jose team Chang a TE pesiod 8 4 Change in emate 1s Fran yo = aon. 14 (AICPA) Ce tub fem fon en wey eo eee ea emcee his was P6B000. Mark bas decided we fmcse nen oe 2a should be amortized forthe year ended Dever 20127 $100 & 4080 f £000 a ° PROB, 15-5 (AICPA) (On January 2, 2014, Rafa Co parce anchise witha sf ie of tn Sears oF F50,000. An addition franchise ce of 3% offence operon Wrendes must be paid each year the Hatchsor, Resencs fom Fanchse ‘Grens mound to 00.000 during nits Decrber 201 tance fect what amount should Rats rope as an angie asset Nancie? 32,000 » 43800 «45,000 450,000 PROB. 15.6 (AICPA) sempany allow had performed substan Fae franchisee pad the inane fenchise agreement sec fee of P6000 annually, of which 2% me What jure etry should Browes make ot . meiertatnDS ene aim mcr e215Clot, a ae ae ie sce ai at en i ea Fe — : ie a ore = co 76.000 ee “ ist : Fs ie a ioe “s PROB. 18-7/AICPA) ee eee ee wens of the Spee oad balance, represented ») @ note, t» duc sn tee Smet or anne ping Brome S018 The pom ‘an Deen 31.2044 of ee sonal pyrene cai cng te pene He "one ot rem tr mao ees ate» Exe Sil awe anes eee oe. cob aaa tec : Fe Sg 2124 le sheet need ranches om? 12.000, & 10000 4 7000 1s. Frome eon 8 2(AICPA) ged 1.2014 HCD Sp 0 gpa and Ee 8h Fat a gn. bexining oly 2015 nd se down pyres i ride al oo fur so Toe ne. ant eam Been at Hs fora ba othe pe eect ae wns presen va of P93: ord pds een vt ofans o) Poon r8 er Fac amonnt teak pee a a second he face tthe dae I aces? [At what amount sh 2 518000 & 738000 e982 000 1200000 PROB. 159 (AICPA) Fish Bal Co, charges P0000 for a francine. wth PIE] fd hem ovement is signed and the bslnce i four ama ayers Ne PEE SF coil semen, ciscoumed ow PSRI'S The (racks ge Si ws pacha P20.000 of equpment for Fo, le pee cae aconably ase and soba! prlomanct 1 Oey Payment i reasons we rvnue om nach (rat tl recognized? 72000 & mais © 16315 4 sa00ee el ~S Frta, PROB. 15-10 (Adapted) ‘on November, 20148 fichisee bounce fromm Ma. Sy Nevotes00til Max Turkey's produ fora peng Mt rg ee ies tt P5000 wl Pai in advance sage 2 ee Pie aeeemeefaalinet, evidenced bY 29% promissory ea a ening he esibity dy of en TO, Tain of te fnchsee's staff and employees, The pi Msn Te rte low ve Pree va of PS periods Prana ofan anu ofl for peiods 630 Cee cmuiv oF fr peed (nde) 308 Arming clean of he ot is ressnably sare shai he ano aaa atey rage for the yar eased st shoe o 1.985.000 © $001,000 4 4316.0 PROB. 15-11 (AICPA) Each of Poms Pie Co.'s 21 new franchisee contracted to pay an initial facie fee of F000. By December 31, 2014, each franchisee had paid + mx. ‘efandabhe P0000 foe and signed s nore 10 pay P10,000 principal pos Be (mort rte of trot om December 31,2015 and December 31, 2016. perience micates tat one franchise will default on the additional perme, ‘Sersces forthe nial france foe wil be performed in 2015, Wat Oe ‘ct encaredfrnchae foes would Potter report at December 31, 20147 - asm © ange < 60M «ome ps=Framcise ogee! non. 15-12 RPCPA) ot Pizza granted franchise wo Shake King. She King wa o py fanchis Tee of P100,000 pajable ia Five equal arial mtalinent tang with tc ‘ment upon signing ofthe apreonent The anche mao py my Poa sales ofthe preceding mom, Shou the operation othe te ron ‘proiable the Franchise may be canceled with whatever oblignton wna Tio za in connection with he P1000 francine fs, wave. The! Sea Uropeations generated pss sales of P5000. For he Fst yar Ht Pia (ved franchise fof 5.000 & 200000 228.000 108.000 PROB, 18-13 (RPCPA) Krebs Crabs ne. franchivor entered no #rachise apeement wih Lan Tapa franchise on lly 12014 The tal facie for pred pon 1 PieteLoon ot ch 10006 payable wpe signing and he Palance payable Fo 0 sana linen tas ned thatthe dren payne mak tae panama ick of sabsantal performance of series ‘etal en cts perc facial trent July 31, 2004, the Ancamed francine es be rept & 190000 1000.00 6 Too a gr is en etn nme i ga 2 Sal TP tae 1 cay? mp te fe os 1 pm ta at ' real epi performance sini et tne omic pr2. cow's teal ND EXPLANATIONS tien tia answer (6 Pret popnton en romaiiyot retreat er oer fore recast ety raehiee Desa acy gs " eT Sew 7 frmchsrdgrrean ach w of niacap TH Sea sens er fe (0 Fonte tt rng Naareop fre oe Ey we ea on ey sac? nh ie cae foc rd pnd Oy tv msn aie i ia ie Sai ene Nuke Se e s3er0i ame) No omorcton boss ons 28 ete hen ice oes woh nein a oct iueooe 1453 proies 7 MS or mpm ee oR. 18-18,R0CPa) nik anh oy nad fon 9 Chih Ms fr eof m -3Suegtedanmer) Iparme! ns Patoat Ot tid wenn P90 nas aie wane ig ese tvenen othe arn xl apes Te cons vied a8 3 ponies tht on inguin bso. 8 Sia eens ncn tn a ting oe fe re diy reconrabe tun 51 a5 scene ay eel ha ne ag ay aan oe ‘cn hed a eye fay hace spt Teeny {Creche pn a ane Cn se wl ton 18-4 Sugested answer (0) + Neate Aaa, PAS 38 provides tat waite er 0h 08 exh san ‘moved attested for impairment et see Sie eed chi tooo "am. 15-5 Saget answer (2) P5009 © Cat snow Ns ‘am Aegon cost : Frases eveme ; v0.00 {eae ranhiseemorizion 000" = aor cee ae Franchise Desember 3 7 a ae 74.2 roid hr mg a Fm ree 5omn oer hel ae yes woe ‘rere but tested for impairment \