This free, guided checker walks your finance team through the key decision points for IFRS 15 Franchise Fee Revenue. Answer a few questions to see the likely treatment and the evidence to document.
Answer a few quick questions below. It is private - nothing is submitted or stored - and takes about a minute.
This tool is a high-level IFRS screening aid for general information only and is not accounting, audit or legal advice. Conclusions require entity-specific evidence and judgement - confirm the treatment with your advisor.
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Franchise agreements typically combine initial franchise fees, royalty streams, training, site selection, and ongoing marketing or operational support requiring IFRS 15 analysis.
Franchise-specific analysis does not apply; assess any other licences of intellectual property under IFRS 15.B52-B63B separately.
Official guidance: IFRS issued standards
Test all five IFRS 15.9 criteria at inception: approval and commitment, identifiable rights, identifiable payment terms, commercial substance, and probable collection of the consideration for goods and services to be transferred. For new franchisees, collectability of the initial fee is the criterion that most often fails; reassess only on a significant change in facts and circumstances (IFRS 15.13).
Hold amounts received as a deposit liability until the IFRS 15.9 criteria are met or an IFRS 15.15 event (termination, or completion with nonrefundable consideration) occurs.
Official guidance: IFRS issued standards
IFRS 15.B52 indicates franchise fees often include distinct initial services and a licence of intellectual property; assess whether each promise is distinct in the contract context.
Identify distinct performance obligations under IFRS 15.22-30, applying IFRS 15.B54-B55 where the licence is not distinct, before allocating the transaction price.
Official guidance: IFRS issued standards
Determine the standalone selling price at contract inception for the brand licence, initial services, and ongoing support (IFRS 15.76). Observable prices from standalone sales are the best evidence (IFRS 15.77); otherwise estimate using adjusted market assessment, expected cost plus a margin, or - only where the price is highly variable or uncertain - the residual approach (IFRS 15.78-79). A common trap is defaulting the licence SSP to the stated initial fee.
Complete the IFRS 15.76-79 standalone selling price analysis for each franchise obligation before allocating the transaction price.
Official guidance: IFRS issued standards
Include the initial franchise fee and any fixed consideration in the transaction price (IFRS 15.47) and allocate it to the distinct obligations on a relative SSP basis (IFRS 15.73-74). Sales-based royalties that relate to the licence are typically not estimated at inception because they follow the IFRS 15.B63 exception, and a discount or variable amount is allocated to one obligation only when the IFRS 15.82 or IFRS 15.85 criteria are met.
Allocate the transaction price to each performance obligation on a relative standalone selling price basis per IFRS 15.73-74.
Official guidance: IFRS issued standards
Franchise brand licences usually convey a right to access the IP because the franchisor's ongoing brand activities (advertising, quality control, system development) change the IP the franchisee uses, meeting the IFRS 15.B58 criteria and requiring over-time recognition (IFRS 15.B60). Otherwise the licence is a right to use recognized at a point in time, and in no case can recognition begin before the licence period starts and the IP is made available (IFRS 15.B61).
Use the interactive tool above to see how this applies to your situation.
Official guidance: IFRS issued standards
Initial services typically meet over-time criteria because the franchisee simultaneously receives benefits as the franchisor performs training, site selection, and opening support.
Test each initial service against IFRS 15.35; recognize over time as performed where a criterion is met, otherwise at the IFRS 15.38 point of transfer.
Official guidance: IFRS issued standards
Sales-based or usage-based royalties promised in exchange for a licence of IP are recognized at the later of when the subsequent sale or usage occurs and when the related performance obligation is satisfied (IFRS 15.B63). The exception also applies when the licence is the predominant item to which the royalty relates (IFRS 15.B63A), and it is applied entirely or not at all - never split between the two models (IFRS 15.B63B).
Apply the IFRS 15.B63-B63B royalty exception, recognizing sales-based franchise royalties no earlier than the franchisee's underlying sales.
Official guidance: IFRS issued standards
Use time elapsed, milestones completed, or output methods for initial services and brand access; exclude inputs that do not represent progress toward obligation satisfaction.
Until progress can be measured reasonably, recognize revenue only to the extent of recoverable costs incurred (IFRS 15.44-45).
Official guidance: IFRS issued standards
Initial fees collected before performance create contract liabilities; revenue recognized in advance of billing may create contract assets for franchise arrangements.
Prepare the contract asset and liability rollforward supporting IFRS 15.116-118, tying deferred initial fees to satisfaction of each obligation.
Official guidance: IFRS issued standards
Disclose performance obligations, allocation methods, over-time versus point-in-time judgments, royalty recognition, and contract balance movements for franchise arrangements.
Franchise revenue accounting is complete across identification, allocation, timing, royalties, and the IFRS 15.110-129 disclosures. Complete the IFRS 15.110-129 disclosures for franchise obligations, judgments, and contract balances before sign-off.
Official guidance: IFRS issued standards
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