MOUNTAIN VIEW COLLEGE
SCHOOL OF BUSINESS AND ACCOUNTANCY
ACCOUNTING FOR SPECIAL TRANSACTIONS
WORKSHEET#9: FRANCHISE ACCOUNTING & CONSIGNMENT SALES
INSTRUCTIONS: Answers and all necessary solutions to the requirements must be written in a clean
sheet of paper (all in good form). Submission format must be image file(png or
jpeg) or pdf file.
PROBLEM #1
PROBLEM 3: EXERCISE On January 1, 20×1, Native Co. enters into a contract to grant a franchisee the right to
use Native’s trade name and sell Native’s products for 10 years. In addition, Native also promises to provide the
equipment necessary to operate the franchise store. The contract states a fixed consideration of P450,000 and a
5% sales–based royalty. The fixed consideration includes P150,000 payment for the equipment. This reflects the
stand–alone selling price of the equipment. Native Co., as a franchisor, has developed customary business practice
to undertake activities such as analyzing the customer’s changing preferences and implementing product
improvements, pricing strategies, marketing campaigns and operational efficiencies to support the franchise name.
Native delivers the equipment to the customer on February 1, 20x1. The customer commences business operations
on March 1, 20×1, at which date the 10–year license period starts to run. The franchisee reports sales of
P1,200,000 for the year.
