How to treat Lump sums received by Franchisor?

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Loads and loads of questions looking at this from the Franchisees perspective but not the other side.

Ltd company charges Franchie fees for use of name, reputation, conatcts etc. No material equipment (minor stationery).

1) Receives a lump sum of £15k. should this revenue be brought in over the life of the franchise - 5 Years? Presume tax paid as normal.

2) Another customer is paying £250p/m over 5 years. Is this ok as it is spread over the term of the Franchise?

3) the frachisor is paying out for incentives ie days out if the franchisees hit targets. Is this allowable?

Thanks in advance

Replies (3)

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By bernard michael
15th Oct 2018 09:42

It depends on the terms of the franchise.

If the lump sum is a payment irrespective of the performance of the franchisee and non refundable. it should be credited solely in the year of receipt.
If not spread it over the period of the franchisee's tenure

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Replying to bernard michael:
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By Emma31042
15th Oct 2018 10:37

Thank you so much for your reply. I didn't even consider it being refundable. You mention performance, so is that if the Franchise is performing badly this might end the agreement early and part might be refunded?

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By bernard michael
15th Oct 2018 10:48

Any performance or other refunds will be included in the original agreement, which should dictate your accounting treatment

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