1. You are an accountant. Your client, a franchisor, asked you for an advice regarding the recognition of

revenue from a franchise contract. Your advice to your client would most certainly be based on

which of the following standards?

a. FAS No. 45 (US GAAP)

b. PFRS 15

c. PAS 15

d. PFRS 18

2. The consideration received from a contract with a customer that does not meet the criteria under

'Step 1' of PFRS 15 is

a. recognized as liability.

b. recorded through memo entry only.

c. disclosed only.

d. b and c

3. Entity A enters into a franchise contract with Customer X. The agreement provides Customer X the

right to access Entity A's intellectual property. How should Entity A recognize revenue from the

franchise agreement?

a. over time, as Customer X receives and consumes the benefit from Entity A's performance of

providing access to its intellectual property.

b. at a point in time when Entity A transfers control over the promised license to Customer X.

c. a or b as a matter of an accounting policy choice

d. when there is "substantial performance" by Entity A in accordance with US GAAP.

Use the following information for the next two cases:

On December 31, 20x1, Entity A enters into a contract with Customer X to transfer a license for a fixed

fee of 100,000 payable as follows:

20% is payable upon signing of contract.

80% is represented by a note receivable collectible in 4 equal annual installments starting December

31, 20x2. The appropriate discount rate is 12%.

Case #1:

4. The license provides Customer X the right to use Entity A's patented processes. Customer X

continues to operate using its trade name and has the discretion of developing a new product name

for the products it will produce using the patented processes. The license does not explicitly require

Entity A to undertake activities that will significantly affect the intellectual property to which

Customer A has rights. Neither does Customer X expect that Entity A will undertake such activities.

Entity A grants the license to Customer X on December 31, 20x1. How much revenue from the

franchise contract will Entity A recognize in 20x1?

a. 80,747

Assessment

Testing how far you have learned

18

b. 21,187

c. 20,000

d. 0

Case #2:

5. The license provides Customer X the right to use Entity A's patented processes. The agreement

requires Customer X to discontinue using its trade name and instead use Entity A's trade name.

Customer X is bound by the terms of the contract to abide with Entity A's policies on the use of the

processes but is given the right to any subsequent modifications to the processes. How much

revenue from the franchise contract will Entity A recognize in 20x1?

a. 80,747

b. 20,187

c. 20,000

d. 0