IFRS 15 on Franchise (Licensing/Royalty)
Issue: Under the current standard regarding franchise arrangement – there was no apecification on the treatment of bargain purchase/option purchase, commingled revenue with indicated profit on equipments, repossessed franchise.
My opinion is that eventhough the IFRS 15 does not expressly states on the treatment of those items mentioned, since IFRS are principles-based, i believe that in case of one type of franchise arrangement is “Service Sponsor-Retailer” relationship there may be some exceptions that needs to be addressed such as the franchisee is obliged or have the option to purchase products and equipment’s from the franchisor at its current standalone selling prices at the time of purchase and there is a material right meaning that there is already a payment in advance for future goods and services such option should be accounted for as a separate performance obligation.
In summary, IFRS does not expressly stated those items and my opinion since IFRS are principles-based, then revenue be recognized for those items depending on the agreement either at point-in-time or overtime.
Antonio J Dayag, CPA, PhD, FFA, FIPA, FAIA (Acad)
Professor – University of Santo Tomas, Manila Philippines