Financial Statistics Assignment Solution - University

This assignment solution addresses a financial statistics problem related to IFRS and revenue recognition, focusing on a franchise scenario. The solution covers various aspects, including the allocation of franchise fees, accounting for sales and marketing fees, calculating contract liabilities (deferred revenue), and applying revenue recognition criteria. It also includes a calculation for bad debt expense. The assignment problem involves a franchisor, Franchises'R'Us Corp. (FRU), and a franchisee, New Operators Corp. (NOC), detailing the initial franchise agreement, payment terms, and ongoing services. The solution provides detailed calculations and explanations for each question, ensuring a comprehensive understanding of the financial concepts involved.

Running head: FINANCIAL STATISTICS
Financial statistics
Name of the student
Name of the university
Student ID
Author note

1FINANCIAL STATISTICS
Table of Contents
Answer 1....................................................................................................................................3
Answer 2....................................................................................................................................3
Answer 3....................................................................................................................................4
Answer 4....................................................................................................................................4
Answer 5....................................................................................................................................4
References..................................................................................................................................6

2FINANCIAL STATISTICS
Answer 1
New rules for revenue recognition issued by IFRS that is applicable for the public
companies from 1st January 2019 and for private companies from 1st January 2019 have
significant implications for the franchisors. It requires attention of the franchisors as well as
their accountants to necessitate the consideration in coming years. In the given case, FRU has
2 promises to transfer the services or goods – (i) promise to grant the license and (ii) promise
to transfer the equipment. This is due to the fact that NOC can be benefitted both from using
the franchise agreement for operating MF outlet and using the equipment. FRU determines
that transaction price includes fixed consideration amounting to $ 380,000 and variable
payment of $ 50,000 each at the end of 6 years. The consideration of $ 50,000 will be
allocated to entire period of 6 years. In addition to the license FRU delivered equipment to
NOC, market value of which is $ 475,000 and delivery of equipment is distinct obligation.
That is stand alone selling price of equipment is $ 475,000 and FRU regularly franchises the
license in exchange for the payment of $ 50,000 (Franchise.org 2019). Hence, the receipt of
franchise fees shall be entirely allocated to the performance obligation for granting the usage
of MF outlet and it shall allocate to revenue for equipment sales and for providing start up
assistance obligation as initial obligation for –
(b) $ 475,000
Answer 2
Annual sales and marketing fees are recognized as the sales occur and are accrued for
the fees earned bt not received yet. Hence, in the statement of comprehensive income for the
year ended December 31, 20X3, FRU shall recognize the sales and marketing fees as –

3FINANCIAL STATISTICS
(b) Revenue for the provision of sales and marketing services will be decreased by
$10,000.
The calculation is as follows –
Annual sales amount estimated as = $ 40,00,000
Actual sales = $ 38,00,000
Adjustment for decrease will be for $ (40,00,000 – 38,00,000) * 5% = $ 10,000
Answer 3
Amount that will be reported by FRU as a contract liability (deferred revenue) as at
December 31, 20X3 is –
(d) $ 154,589
Answer 4
According to IFRS 15 Revenue from contracts criteria for recognition of revenue is –
(d) The cash flow from the assets given up differs from that of the assets being received
(Iasplus.com 2019)
Answer 5
Provision for doubtful debt is used for adjusting the doubtful debt under accrual basis
of accounting whereas under income statement approach allowance for doubtful debt is used
(IFRSbox - Making IFRS Easy 2018).
Amount that will be charged by WSC to bad debt expense on December 31, 20X5, as
part of its adjusting entry process is –

4FINANCIAL STATISTICS
(b) $ 55,875
Calculation will be as follows –
sales $ 30,00,000.00
Credit sales $ 27,00,000.00
Allowance for doubtful debt $ 58,250.00
provision for doubtful debt $ 54,000.00
written off of bad debt $ 48,125.00
Amount recovered previously written off $ 1,500.00
year end bad debt $ 67,500.00
Amount left in allowance for bad debt after writing off $ 10,125.00
Adjusted amount of allowance after adjusting the recovered amount $ 8,625.00
Debt expenses to be charged after adjusting the amount from
allowance $ 58,875.00

5FINANCIAL STATISTICS
References
Franchise.org., 2019. [online] Available at:
https://www.franchise.org/sites/default/files/WhatEveryFranchisorMustKnowAboutNewReve
nueRecognitionRules.pdf [Accessed 13 Jan. 2019].
Iasplus.com., 2019. IFRS 15 — Revenue from Contracts with Customers. [online] Available
at: https://www.iasplus.com/en/standards/ifrs/ifrs15 [Accessed 13 Jan. 2019].
IFRSbox - Making IFRS Easy., 2018. How to calculate bad debt provision under IFRS 9 -
IFRSbox - Making IFRS Easy. [online] Available at: https://www.ifrsbox.com/how-to-
calculate-bad-debt-provision-under-ifrs-9/ [Accessed 13 Jan. 2019].