How does Aira Fitness recognize consideration allocated to pre-opening activities included under Accounting Standards Update (ASU) to ASC 606?
Aira_Fitness Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company estimates the stand-alone selling price of pre-opening activities using an adjusted market assessment approach. The Company will first allocate the initial franchise fees and the fixed consideration, under the franchise agreement to the standalone selling price of the training services that are not brand specific and the residual, if any, to the right to access the Company's intellectual property. Consideration allocated to pre-opening activities, which are not brand specific are recognized ratably as those services are rendered. Consideration allocated to pre-opening activities included under Accounting Standards Update (ASU) to ASC 606, Franchisors—'Revenue from Contracts with Customers (Subtopic 952-606): Practical Expedient' is recognized when the related services have been rendered.
The remaining franchisee fee not allocated to pre-opening activities are recorded as Unearned Revenue and will be recognized over the term of the franchise agreement.
Source: Item 23 — **RECEIPTS (FDD pages 59–254)
What This Means (2025 FDD)
According to Aira Fitness's 2025 Franchise Disclosure Document, the company uses an adjusted market assessment approach to estimate the stand-alone selling price of pre-opening activities. Aira Fitness allocates the initial franchise fees and fixed consideration under the franchise agreement to the stand-alone selling price of training services that are not brand specific. Any residual amount is then allocated to the right to access Aira Fitness's intellectual property.
Consideration allocated to pre-opening activities that are not brand specific is recognized ratably as those services are rendered. For pre-opening activities included under Accounting Standards Update (ASU) to ASC 606, 'Revenue from Contracts with Customers (Subtopic 952-606): Practical Expedient', consideration is recognized when the related services have been rendered.
The remaining franchisee fee not allocated to pre-opening activities is recorded as Unearned Revenue and will be recognized over the term of the franchise agreement. This means that Aira Fitness recognizes revenue for these activities as they provide access to their intellectual property over the life of the agreement, rather than all at once.