PROBLEM 1: TRUE OR FALSE 1. The current PFRSs do not address the accounting for revenues from franchise contracts. 2. If a promise to grant a license is distinct, the entity shall apply the specific principles to determine whether the license provides the customer a right to access or a right to use the entity's intellectual property. 3. If the intellectual property to which the customer has rights does not change over the license period, the nature of the entity's promise to transfer the license is most likely a "right to access." 4. If the nature of an entity's promise to transfer a license is a "right to use," revenue shall be recognized at a point in time. 5. According to PFRS 15, revenue is measured at the fair value of the consideration received or receivable in the contract. PROBLEM 2: MULTIPLE CHOICE - THEORY 1. According to PFRS 15, a promise to grant a license is distinct if a. the use of the license is highly dependent on a related service. b. the customer can benefit from the license on its own (or together with other resources) and the license is separately c. the promise is satisfied over time. d. the license is integral to the functionality of a tangible good. 2. Which of the following would most likely be considered as a separate performance obligation in a franchise agreement? a. initial services required of the franchisor that are in substance activities to setup the contract b. equipment that the franchisee is required to purchase or otherwise obtain from a third party supplier c. grant of license to use the franchisor's trademark d. activities that the franchisor is required to undertake to support the intellectual property covered in the franchise 3. If the promise to transfer a license is distinct, a. the entity shall treat all the promises in the contract as a single performance obligation. b. the entity shall determine whether the performance obligation is satisfied over time or at a point in time using the 'general principles' of PFRS 15. c. the entity shall determine the nature of the grant of license as either "right to access" or "right to use." d. b and c 4. Entity A enters into a franchise contract with Customer X : The agreement provides Customer X the right to access Entity As 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. 5. If a franchise contract requires the franchisor to undertake activities that would affect the franchisor's intellectual property to which the franchisee has rights, the performance obligation is satisfied a. at a point in time. b. over time. c. under time. d. anytime. 6. An entity enters into a contract with a customer to license (for a period of three years) intellectual property related to the design and production processes for a good. The contract alo, specifies that the customer will obtain any updates to that intellectual property for new designs or production proceses that may be developed by the entity. The updates are escential to the customer's ability to use the license because the customer operates in an industry in which technologies change rapidly. The entity does not sell the updates separately and the customer does not have the option to purchase the license without the updates. Which of the following statements is incorrect? a. The promises to grant the license and to provide the updates are two separate performance obligations. b. The license and the updates are accounted for together as a single performance obligation. c. The general principles are applied to determine how the performance obligation is satisfied. d. The single performance obligation is satisfied over time (IFRS 15.IE278-280 - Adapted) 7. Direct costs of a franchise contract incurred by a franchisor and within the scope of PFRS 15 are recognized as expense using the a. matching concept. b. immediate recognition principle. c. effective interest method. d. concept of conservatism or prudence. 8. On Nov. 1, 20x1, NEFARIOUS Co. enters into a contract to transfer a license to EVIL Co. The license provides EVIL the right to use NEFARIOUS' intellectual property over a four year period. In exchange, EVIL pays a fixed consideration which is due at contract inception. The intellectual property does not change over the license period. NEFAROUS effectively transfers the license to EVIL on Jan 31, 20x2 NEFARIOUS incurred direct contract costs in 20x1. How should NEFRARIOUS account for the fixed consideration and the contract costs, respectively? Fixed consideration Contract costs a. revenue in full on 11/1/x1 expensed in full on 11/1/x1 b. revenue in full on 1/31/2 expensed in full on 1/31/2 c. revenue in full on 1/31/2 expensed in full in 201 d. deferred and amortized deferred and amortized 9. If at contract inception the collectability of the promised consideration is significantly uncertain, a. no revenue is recognized from the contract, and any amount received is recognized as liability. b. revenue from the contract is recognized using the "installment method." c. the accrual method is disregarded and revenue is recognized only when cash collections exceed the costs incurred. d. any of these as a matter of accounting policy choice 10. The uncertainty in the collectability of contract revenue that arises in a subsequent period is a. accounted for as a retrospective adjustment to revenue. b. accounted for prospectively as a "catch-up" adjustment to revenue. c. accounted for as impairment of receivable and/or contract asset. d. accounted for as a prior-period error. PROBLEM 3: EXERCISE On January 1,201, Native Co. enters into a contract to grant a franchisee the right to use Native's trade name and sell Native's