Question
CARM is a franchisor that grants franchisees to operate as a personal development centre. Each franchise agreement gives the franchisee the right to open an
CARM is a franchisor that grants franchisees to operate as a personal development centre. Each franchise agreement gives the franchisee the right to open an outlet and provide services in the area for a period of 5-years. Under the contract, CARM also provides the franchisee with a number of services to support and enhance the franchise brand including giving consultations on the business operations; communicating upgrades in the curriculum and teaching techniques; and providing trainings and materials needed for their operations.
The franchisees employ instructors will be trained by CARM, are given instructional modules and are regularly updated for changes, at least on a monthly basis.
CARM enters into a franchise agreement on December 31, 20x1, giving a franchisee the rights to operate as a franchise for five years. CARM charges an initial franchise fee of P1,000,000 for the right to operate as franchisee, payable upon signing the contract. CARM also receives ongoing royalty payments of 5% of the franchise's annual enrolment (payable each January 15, of the following year).
What is the franchise revenue on December 31, 20x1? What is the franchise revenue on December 31, 20x2' if the franchisee reports revenue P15,000,000 for 20x2?
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