Reference no: EM133125882

Question - On January 1, 2020, ABC signed an agreement to operate as a franchisee of X Food Chain, Inc. for an initial franchise fee of P1,500,000. Of this amount, P300,000 was paid when the agreement was signed and the balance is payable in 4 annual payments of P300,000 each beginning January 1, 2021. The agreement provides that the down payment is not refundable and no future services are required of the franchisor. The present value at January 1, 2020, of the 4 annual payments discounted at 14% (the implicit rate for a loan of this type) is P874,000. The agreement also provides that 5% of the revenue from the franchise must be paid to the franchisor annually. ABC's revenue from the franchise for 2020 was P19,000,000. ABC estimates the useful life of the franchise to be 10 years. What is the carrying value of the franchise at December 31, 2020?