Question

On January 1, 20x2, Entity A granted a franchise to Entity B involving a cosmetic stall

The franchise agreement requires:

Entity B to pay non-refundable initial franchise fee amounting to 900,000 within ten days from the signing of document evidencing the franchise agreement.
The franchise agreement requires Entity B to pay contingent franchise fee equivalent to 10% of its sales revenue to Entity A. Entity B paid the initial franchise fee on January 10, 20x2.
In relation to initial franchise fee on January 10, 2021

Entity A is required to render the following separate and distinct performance obligations:
a. To construct the food stall of Entity B which has stand-alone selling price of 500,000
b. To allow Entity B use its registered trademark and tradename for a period of 20 years starting January 1, 20x2 which has stand-alone selling price of 200,000
C. To supply 5,000 units of raw materials to entity B which has stand-alone selling price of 300,000

On June 30, 20x2. Entity A completed the construction of Entity B’s cosmetic stall. As of December 31, 20x2, Entity has already delivered 2,000 units of raw materials to Entity B.
B commenced its operations on October 1, 20x2 and it reported sales revenue amounting to 330,000 for the period ended December 31, 20x2.

What is
A. the total revenue to be recognized by A for the period ended December 31, 20x2.
B. the unearned revenue to be reported by A on December 31, 20x2

Answer 1

Schedule showing computation of total revenue to be recognised and unearned revenue

Date	Particulars	Entity A
Jan 10	Non-refundable initial franchise payment	9,00,000
June 30	Completion of construction of Entity B cosmetic stall	5,00,000
Dec 31	Supply on raw materials (300,000/5,000*2,000)	1,20,000
Dec 31	Contingent franchise fee (330,000 X 10%)	33,000
Dec 31	Registered trademark fee (200,000*1/20)	10,000
	Total revenue to be recognised	15,63,000
	Unearned revenue
Dec 31	Supply of raw materials (300,000 / 5,000 * 2,000)	1,20,000
Dec 31	Registered trademark fee (200,000*19/20)	1,90,000
	Total unearned revenue	3,10,000