Final answer:
Recognizing the entire franchise fee as revenue at the date of sale may be improper in franchise arrangements due to the ongoing obligations of the franchisor to the franchisee.
Step-by-step explanation:
In franchise arrangements, it may be improper to recognize the entire franchise fee as revenue at the date of sale because the franchisor has ongoing obligations to the franchisee. These obligations include providing ongoing support, training, and access to supply chains. Recognizing the entire fee as revenue at the date of sale would not accurately represent the ongoing nature of the franchisor's responsibilities.
For example, let's say a franchisee pays a $50,000 franchise fee to a franchisor. The franchisor provides training to the franchisee over the course of a year. If the entire franchise fee is recognized as revenue at the date of sale, it would give the impression that the franchisor has fulfilled all its obligations, when in reality, the ongoing support and training are still pending.
Therefore, it is more accurate and appropriate to recognize the franchise fee as revenue over the period the franchisor is expected to fulfill its obligations to the franchisee.