Franchise Refund Accounting Treatment
I wonder if anyone can let me know if I will be treating a refund of a franchise after 1 year, correctly in the accounts - as not done one before?
Franchise purchased for £10,000 plus Vat by a Sole Trader covering a three year contract.
After year 1, depreciation £3333.33 applied leaving £6666.66 in the balance sheet, and reducing profit by £3333.33 in year 1.
In year 2, disgruntled franchisee, demanded a refund as the purchase was not as agreed.
Amount received is £6048.00 plus Vat.
I am proposing the following:
B/S currently shows DR £10,000 Franchise and CR £3333.33 Franchise Dpn
Cr £6048 to Franchise and Cr £3333.33 to Franchise by doing a Dr £3333.33 to Franchise Dpn
this would leave a Balancing Allowance of £618.67, thus reducing profit in the year, as this is the amount he has lost.
By way of a Credit to Franchise and a Dr to P & L