C.600,000
On January 1, 2021, an entity granted franchise to a franchisee. The franchise agreement requires the franchisee to pay a non-refundable initial franchise fee of P1,500,000 and sales-based royalty of 8% of the sales of the franchisee. The franchisee paid P500,000 upon signing of the agreement and the balance payable in four equal annual installments starting December 31, 2021. The franchisee’s credit rating indicates that he can borrow money at 7% for a loan of this type.
In relation to the non-refundable initial franchise fee, the franchise agreement required the entity to render the following distinct performance obligations:
· To construct the franchisee’s stall with stand-alone selling price of P600,000.
· To deliver 20,000 units of raw materials to the franchisee with stand-alone selling price of P750,000.
· To allow the franchisee the access to the entity’s tradename for a period of ten years starting January 1, 2021 with stand-alone selling price of P150,000.
On June 30, 2021, the entity completed the construction of the stall of the franchisee. As of December 31, 2021, the entity was able to deliver 6,000 units of raw materials to the franchisee. For the year ended December 31, 2021, the franchisee reported sales revenue amounting to P600,000.
How much of the transaction price will be allocated to the construction of the franchisee’s stall?
A.673,401
B.538,721
C.600,000
D.0
Step by step
Solved in 2 steps
