Question

On April 1 2020 DinePlus Restaurants Incorporated, a franchisor, signed a franchise agreement to allow a franchisee to operate a business in northwest Edmonton, Alberta for a 10-year period.

Note:       A franchise agreement is an agreement between a franchisor (a parent company) and a franchisee (an individual or a company) that permits the franchisee to operate a business using the products and services of the franchisor in return for payment of a franchise fee to the franchisor.

The agreement requires the franchisee to pay DinePlus $200,000 up front and a royalty of 2% of its sales revenue. The franchisee paid DinePlus the $200,000 on the date the agreement was signed. Management at DinePlus estimates that the value of services rendered to this franchisee in setting up the business was $80,000, taking into account location, demographic analysis, staffing, and training. Management at DinePlus also believes that the remainder of the initial fee relates to services that will be provided by the franchisee evenly over next 10 years.

DinePlus follows IFRS and has a September 30 year-end. Monthly sales during the 2020 calendar year as reported by the franchisee were as follows:

Month	Franchisee Revenues
April	90,000
May	140,000
June	250,000
July	280,000
August	260,000
September	180,000
October	150,000
November	150,000
December	300,000

Question No. 1 (continued)

PART B: (continued)

Required:

1. Prepare the journal entry for DinePlus on the date the franchise agreement is signed.     

2. Prepare the journal entries for DinePlus for the year ended September 30, 2020.

Note:   You may expand the JE blocks shown below if necessary and you may copy/paste to add more blocks as needed.

	April 1, 2020		DR	CR

	September 30, 2020		DR	CR

Answer 1

Working note: