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What is the carrying value of the franchise to be reported

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Problem 1: On July 1, 2018, Flat Co. signed an agreement to operate as a franchise of Gas Co. for an initial franchise fee of P1,200,000. On the same date, Flat paid P400,000 and agreed to pay the balance in four equal payments of P200,000 beginning July 1, 2019. The downpayment is not refundable and no future services are required of the franchisor. Flat can borrow at 14% for a loan of this type. If the franchise has definite life of 20 years, what is the carrying value of the franchise to be reported on the December 31, 2020balance sheet?

Option 1: P 859,950

Option 2: P 908,350

Option 3: P 1,110,000

Option 4: P 1,352,000

Reference no: EM132765535

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