How does Aplus account for shipping and handling activities that occur after the customer has obtained control of a good?
Aplus Franchise · 2024 FDDAnswer from 2024 FDD Document
The Partnership elected the following practical expedients in accordance with ASC 606:
- Significant financing component The Partnership elected not to adjust the promised amount of consideration for the effects of a significant financing component if the Partnership expects at contract inception that the period between the transfer of a promised good or service to a customer and when the customer pays for that good or service will be one year or less.
- Incremental costs of obtaining a contract The Partnership elected to expense the incremental costs of obtaining a contract when the amortization period for such contracts would have been one year or less.
- Shipping and handling costs The Partnership elected to account for shipping and handling activities that occur after the customer has obtained control of a good as fulfillment activities (i.e., an expense) rather than as a promised service.
- Measurement of transaction price The Partnership has elected to exclude from the measurement of transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the Partnership from a customer (i.e., sales tax, value added tax, etc.).
- Variable consideration of wholly unsatisfied performance obligations The Partnership has elected to exclude the estimate of variable consideration to the allocation of wholly unsatisfied performance obligations.
Source: Item 22 — CONTRACTS (FDD page 68)
What This Means (2024 FDD)
According to Aplus's 2024 Franchise Disclosure Document, Aplus accounts for shipping and handling activities that occur after a customer obtains control of a good as fulfillment activities. This means that instead of considering these activities as a promised service to the customer, Aplus treats them as expenses incurred to fulfill the sales transaction.
For a prospective Aplus franchisee, this accounting practice has implications for how revenue and expenses are recognized. By classifying these post-control shipping and handling activities as fulfillment expenses, Aplus recognizes the revenue when the customer gains control of the goods, and separately accounts for the costs associated with shipping and handling. This approach simplifies the accounting process by avoiding the need to allocate a portion of the revenue to a separate service obligation.
This accounting treatment is one of several practical expedients Aplus has elected in accordance with ASC 606, the accounting standards codification related to revenue from contracts with customers. Other expedients include how Aplus handles significant financing components, incremental costs of obtaining a contract, measurement of transaction price, and variable consideration of wholly unsatisfied performance obligations. These elections are designed to simplify revenue recognition and reporting for Aplus.
It is important for potential Aplus franchisees to understand these accounting practices, as they affect the financial reporting and overall financial picture of the franchise. While this specific accounting treatment may not directly impact day-to-day operations, it is crucial for accurate financial management and reporting.