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ABC sells franchise arrangement throughout La Trinidad and Itogon. Under a franchise agreement, ABC receives 1,000,000 in exchange for satisfying the following separate performance obligations: franchisees have a ten- year right to operate as an ABC retail establishment once it started its operation; franchisees receive an ABC building and necessary equipment; franchisees receive initial training and certification as an ABC retail. The 1,000,000 is payable with a down payment of P500,000 on August 1, 2021 with the balance will be payable in five equal annual payments with an interest of 10% starting January 1, 2022. The stand-alone selling price of the initial training and certification is P100,000 and P400,000 for the building and equipment. ABC estimates that the stand-alone selling price of the ten-year right to operate as a franchise using the residual approach. ABC received P500,000 on August 1, 2021 from DDD, which represent the collection from the training, building and equipment, and accepted a note receivable for the rest of the franchise price. ABC will construct and equip DDD's building and train and certify DDD by November 1, 2021 and DDD's ten-year right to operate as ABC franchise will commence on November 1, 2021. Compute the unearned franchise revenue to be recognize in the year ended December 31, 2021.The terms of the arrangement require the operator to: Construct a road-completing construction within two years Maintain and operate the road for three years Resurface the road at the end of Year 4 The government pays the operator P200 per year in Years 3 to 5 for making the road available to the public The road is turn-over to the government at the end of Year 5 The operators determine that the implied interest rate is 24.42%. The operator finances the arrangement entirely with debt. The debt proceeds are taken as the contract cost are paid. The debt is payable as follows: 75 in each of years 3 and 4 and P40 in year 5. The effective interest rate is 25.77% The operator makes the following estimates: Year Contract Cost Stand-alone selling price Construction Services 70 Forecast cost +10% 2 80 Forecast cost +20% Operation Services 3-5 25 Forecast cost +30% Road resurfacing 4 15 Forecast cost +10% Compute for the profit for year 2.On July 1, 2011, ABC, a franchisor, entered into a franchise agreement with EEE, a franchisee. The total franchise fees agreed upon is P2,100,000 of which P100,000 is payable upon signing and the balance payable in four annual installments. It was agreed that the down payment is non-refundable, notwithstanding lack of substantial performance of services by franchisor. The deferred revenue from franchise fee to be reported in the July 31, 2011 financial statements of AAA would be
