When does Angry Chickz record a contract liability?
Angry_Chickz Franchise · 2025 FDDAnswer from 2025 FDD Document
a that must be met for revenue to be recognized in conformity with U.S. GAAP. Contract assets are unearned commissions that have been paid to customers but not yet amortized.
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.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 54)
What This Means (2025 FDD)
According to the 2025 FDD, Angry Chickz recognizes revenue based on FASB ASC Topic 606, Revenue from Contracts with Customers. This standard dictates that revenue is recorded when promised goods or services are transferred to customers, reflecting the consideration Angry Chickz expects to receive. The company assesses each contract to identify separate performance obligations and recognizes revenue as these obligations are fulfilled. This assessment includes evaluating the customer's ability to pay and their credit risk. Each promise to fulfill services is considered a distinct performance obligation.
For franchise fee revenue, the franchise arrangement involves activities to support the Angry Chickz brand rather than direct transfer of goods/services to the franchisee. These activities are highly interrelated with the franchise license and intellectual property, representing a single performance obligation: granting access to the brand's intellectual property over the franchise agreement term.
While the FDD details how Angry Chickz recognizes various revenue streams such as royalty revenue, brand fund revenue, and franchise fee revenue, it does not explicitly state when Angry Chickz records a contract liability. A prospective franchisee should ask the franchisor for more details about contract liabilities.