Reference no: EM132792929

A franchisor grants a franchisee the right to operate a restaurant over a 10-year period using the franchisor's trademark and proprietary processes in exchange for P500,000 upfront fee and 10% sales-based royalty. The only performance obligation in the contract I the promise to grant the license, and this is satisfied over time. The franchisor reserves its right to terminate the contract after restaurants' commencement of operations for any of the following reasons: abandonment, insolvency, foreclosure, criminal conviction, failure to make payments, misuse of trademark, unauthorized disclosure of secret processes, repeated noncompliance with franchise policies, and unauthorized transfer of the license. Upon such termination, none of the upfront is refundable and the franchisor reserves its legal right to collect any amount due from royalty earned and for any legal damages. At the beginning of year 3, the franchisee violates one of the covenants above and thus the franchisor terminates the contract.

Problem 1: What is the revenue at the end of year 1, 2 and 3.