ABC Corporation pays a franchise fee of ₱25,000,000 to enable to sell Good’s product for the next 20 years. In addition, it is required to pay an annual fee of ₱100,000. What is the amount of annual amortization?
Question
ABC Corporation pays a franchise fee of ₱25,000,000 to enable to sell Good’s product for the next 20 years. In addition, it is required to pay an annual fee of ₱100,000. What is the amount of annual amortization?
Solution
The total franchise fee that ABC Corporation has to pay for 20 years is ₱25,000,000. This fee is paid upfront to sell Good's product for the next 20 years.
To calculate the annual amortization, we need to divide the total franchise fee by the number of years.
So, ₱25,000,000 divided by 20 years equals ₱1,250,000.
This is the annual amortization of the franchise fee.
However, ABC Corporation is also required to pay an annual fee of ₱100,000.
So, to calculate the total annual amortization, we need to add the annual amortization of the franchise fee and the annual fee.
So, ₱1,250,000 (annual amortization of the franchise fee) + ₱100,000 (annual fee) equals ₱1,350,000.
Therefore, the amount of annual amortization that ABC Corporation has to pay is ₱1,350,000.
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