Priestly Bakers plc operates its retail outlets on a franchise basis. On 1 January 20X0 a new outlet was opened with a six-year franchise arrangement. The franchisee paid a fee of

£600,000 for the equipment necessary to operate a franchise store. In addition, the contract requires the franchisee to pay a fee of 5% of its monthly sales commencing on 1 January 20X0 to cover marketing, managerial and other support services provided by Priestly Bakers during the franchise period. LO6 Required:

Discuss how this transaction would be accounted for in Priestly Baker plc’s financial statements for the year ended 31 December 20X0 in accordance with IFRS 15 Revenue from Contracts with Customers.