On 1 July 2021, Food Mart Ltd acquired a franchise – Tasty Bakery Foods- for $56,000 for 7 years. "Tasty Bakery Foods" is a very popular franchise across New Zealand and there is a great demand for this franchise in the current market. As at 31 March 2022, the current market price for the franchise is $ 60,000.
Paul, the accountant of Food Mart Ltd, seeks your advice on how to account for the above franchise in their books.
Required:
Explain to Paul about the options available in measuring the above franchise – Tasty Bakery Foods – on 31 March 2022 in line with NZ IAS 38. In your answer, show all calculations to the franchise value for each of your suggested option and show how the franchise should be presented in the Statement of Financial Position as at 31 March 2022 under each option (Note: You don’t need to write journal entries).