What does Angry Chickz consider when determining the amount of revenue to recognize?
Angry_Chickz Franchise · 2025 FDDAnswer from 2025 FDD Document
Revenue recognition – The Company records revenue under FASB ASC Topic 606, Revenue from Contracts with Customers (Topic 606), which requires revenue to be recorded as the transfer of promised goods or services to customers in an amount that reflects the consideration to which the reporting entity expects to be entitled in exchange for those goods or services. The Company analyzes each contract for separate performance obligations existing over the term of the contract and recognizes revenue as those performance obligations are satisfied. As part of its assessment of each franchise contract, the Company evaluates certain factors including the customer's ability to pay, or credit risk. For each contract, the Company considers the promise to fulfill services, each of which is distinct to be the identified performance obligations. The Company has the following revenue streams:
Royalty revenue – Royalty revenues represent royalties earned from each of the franchisees in accordance with the franchise disclosure document and the franchise agreement for use of the Angry Chickz name, menus, processes, and procedures. The royalty rate in the franchise agreement is up to seven percent of the gross sales of each restaurant operated by each franchisee. Royalty fee revenue from franchised restaurants is recognized in the period earned and is payable to the Company weekly or monthly when the sales are reported by the franchisees.
Brand fund revenue – Brand fund revenues represent payments made by the franchisee to the Company for the brand development fund (Brand Fund) in accordance with the franchise disclosure document, and the franchise agreement. The Brand Fund fee rate is up to 2% of the gross sales of each restaurant operated by each franchisee. Brand Fund revenue is recognized weekly or monthly, while expenditures will be included in advertising expenses. Expenditures of the Brand Fund will primarily be amounts paid to third parties but may also include personnel expenses and allocated costs from the Member.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 54)
What This Means (2025 FDD)
According to the 2025 FDD, Angry Chickz records revenue based on FASB ASC Topic 606, "Revenue from Contracts with Customers". This means Angry Chickz recognizes revenue when it transfers promised goods or services to customers, reflecting the consideration they expect to receive in exchange.
Angry Chickz analyzes each contract to identify separate performance obligations over the contract term, recognizing revenue as these obligations are met. This assessment includes evaluating the customer's ability to pay and their credit risk. For each contract, Angry Chickz considers the promise to fulfill services, each of which is distinct, as the identified performance obligations.
Angry Chickz has several revenue streams, including royalty revenue, which is up to 7% of gross sales from each franchised restaurant, and brand fund revenue, which is up to 2% of gross sales. Royalty revenue is recognized when earned, payable weekly or monthly when franchisees report sales. Brand Fund revenue is also recognized weekly or monthly, while expenditures are included in advertising expenses.
In short, Angry Chickz considers the terms of the contract with the franchisee, the ability of the franchisee to pay, and the fulfillment of performance obligations when determining how much revenue to recognize. This approach ensures that revenue is recognized accurately and in accordance with accounting standards.