Franchise arrangement and performance obligation In a franchise transaction, the franchisor has multiple performance obligations. In franchise business, the franchisor gives the selling rights to the franchisee for a particular period. The franchisor provides the start-up services to the franchisee. Therefore, the franchise involves a license to use the franchisor property and sales of the goods and service in the name of franchisor. The revenue recognition principle The revenue recognition principle refers to the revenue that should be recognized in the time period, when the performance obligation (sales or services) is completed by the company. To discuss: The timing of revenue recognition of initial franchise fees revenue.

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Chapter 5, Problem 5.19BYP

Requirement – 3 (a)

To determine

Franchise arrangement and performance obligation

In a franchise transaction, the franchisor has multiple performance obligations. In franchise business, the franchisor gives the selling rights to the franchisee for a particular period. The franchisor provides the start-up services to the franchisee.

Therefore, the franchise involves a license to use the franchisor property and sales of the goods and service in the name of franchisor.

The revenue recognition principle

The revenue recognition principle refers to the revenue that should be recognized in the time period, when the performance obligation (sales or services) is completed by the company.

To discuss: The timing of revenue recognition of initial franchise fees revenue.

b)

To determine

To discuss: The manner in which the continuing fees is determined.

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