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sooha
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jenson Co owns the rights to a fast food franchise. On 1 April 20X4 it sold the right to open a new outlet to Mr Verstappen. The franchise is for five years. Jenson Co received an initial fee of $50,000 for the first year and will receive $5,000 per annum thereafter. Jenson Co has continuing service obligations on its franchise for advertising and product development that mount to approximately $8,000 per annum for each franchised outlet. A reasonable profit margin on the provision of the continuing services is deemed to be 20% of revenues received.
please help in the answer it mentioned that the profit in the 20 % for year 1 and approximately 46 %
how to get these figure i don’t understand ?
P2-D2
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Hi,
They will have used the stage of completion based upon costs to work out the figure. They have incurred costs of $8,000 this year and the total costs would be $40,000 ($8,000 x 5 years). The 8/40 x 100% gives the 20%.
Thanks
sooha
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