When are royalty fees recognized as revenue by Advanced Mobile Iv And Amiv?
Advanced_Mobile_Iv_And_Amiv Franchise · 2023 FDDAnswer from 2023 FDD Document
p. These amounts do not accrue interest and are due on demand. As of December 31, 2022, the total balance due to related parties was $85,129.
ADVANCED MOBILE IV, LLC NOTES TO THE FINANCIAL STATEMENTS December 31, 2022
(5) Franchise Agreements
The Company's franchise agreements generally provide for a payment of initial fees as well as continuing royalties, technology fees, and marketing fees to the Company based on a percentage of sales. Under the franchise agreement, franchisees are granted the right to operate a location using the Advanced Mobile IV system for a period of ten years. Under the Company's revenue recognition policy, franchise fees and any corresponding commissions are recognized when the franchisee begins operations. For any franchisees that have not yet begun operations as of year-end, the Company defers both the revenue
Source: Item 23 — RECEIPTS (FDD pages 54–202)
What This Means (2023 FDD)
According to Advanced Mobile Iv And Amiv's 2023 Franchise Disclosure Document, the company's franchise agreements generally require franchisees to pay initial fees, continuing royalties, technology fees, and marketing fees, all based on a percentage of sales. However, Advanced Mobile Iv And Amiv's revenue recognition policy dictates that franchise fees and any associated commissions are only recognized as revenue when the franchisee actually begins operations.
For franchisees who have not yet started operations by the end of the fiscal year, Advanced Mobile Iv And Amiv defers both the revenues and commissions. This means that the company does not count these fees as earned income until the franchisee is up and running. The deferred revenues are categorized as either current or non-current, depending on when the franchisee is expected to begin operations.
As of December 31, 2022, Advanced Mobile Iv And Amiv had $39,998 in deferred revenue, all of which was classified as current, indicating that the company expected these franchisees to begin operations within the following year. This policy ensures that Advanced Mobile Iv And Amiv recognizes revenue only when franchisees are actively generating sales, aligning revenue recognition with actual business activity.