Wigs and Torys Plc

question 104

Multiple Choice

Wigs and Torys Plc.is a leading operator of pubs and pub restaurants in the United Kingdom.It operates and franchises about 10 wine restaurants under the name Bottoms Up Bar, primarily in London.Suppose that in contracting with a franchisee of an Bottoms Up Bar wine restaurant, Wigs and Torys agrees to provide services, including site selection, décor design, marketing, advertising, and recruiting; and the franchisee agrees to pay Wigs and Torys £100,000.It is common in the industry to permit the franchisee to pay in equal installments over several years.When should Wigs and Torys recognize revenue from the franchisee contract?

• A)at the time Wigs and Torys Plc.signs the contract with the franchisee
• B)as the cash is received by Wigs and Torys from the franchisee
• C)as the income is earned by Wigs and Torys
• D)at the end of the franchise period
• E)half should be recognized when Wigs and Torys Plc.signs the contract with the franchisee and the other half after all the installments are received

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Definitions:

Fixed Overhead Costs

Fixed costs that stay the same no matter how much is produced or sold, including items like rent, salaries, and insurance policies.

Operating Capacity

The maximum level of activity that a company can sustain with its current resources and infrastructure without incurring additional costs.

Investment Center

A business unit or department that is responsible for its own revenues, expenses, and investment in assets, with its performance measured by its return on investment.

Controllable Margin

The portion of profit or income directly influenced by the management decisions, typically excluding fixed costs.