Under Aplus's motor fuel contracts, when is revenue recognized?
Aplus Franchise · 2024 FDDAnswer from 2024 FDD Document
Revenue is recognized under the motor fuel contracts at the point in time the customer takes control of the fuel. At the time control is transferred to the customer the sale is considered final, because the agreements do not grant customers the right to return motor fuel. To determine when control transfers to the customer, the shipping terms of the contract are assessed as a primary indicator of the transfer of control. For FOB shipping point terms, revenue is recognized at the time of shipment. The performance obligation with respect to the sale of goods is satisfied at the time of shipment since the customer gains control at this time under the terms. Shipping and/or handling costs that occur before the customer obtains control of the goods are deemed to be fulfillment activities and are accounted for as fulfillment costs. Once the goods are shipped, the Partnership is precluded from redirecting the shipment to another customer and revenue is recognized.
Commission agent revenue consists of sales from commission agent agreements between the Partnership and select operators. The Partnership supplies motor fuel to sites operated by commission agents and sells the fuel directly to the end-use customer. In commission agent arrangements, control of the product is transferred at the point in time when the goods are sold to the end-use customer. To reflect the transfer of control, the Partnership recognizes commission agent revenue at the point in time fuel is sold to the end-use customer.
Source: Item 22 — CONTRACTS (FDD page 68)
What This Means (2024 FDD)
According to Aplus's 2024 Franchise Disclosure Document, revenue recognition for motor fuel contracts depends on the nature of the sale and the transfer of control to the customer. For standard motor fuel contracts, Aplus recognizes revenue at the point in time the customer takes control of the fuel. Since Aplus's agreements do not grant customers the right to return motor fuel, the sale is considered final once control is transferred. The shipping terms of the contract are a primary indicator of when control transfers. For FOB (Free On Board) shipping point terms, revenue is recognized at the time of shipment, as the customer gains control at that time.
For commission agent arrangements, where Aplus supplies motor fuel to sites operated by commission agents and sells the fuel directly to the end-use customer, revenue is recognized at the point in time when the goods are sold to the end-use customer. This reflects the transfer of control to the final consumer.
In the 'All Other' segment, which includes company-operated retail stores, revenue from motor fuel sales is recognized when the customer obtains control of the good or the service is provided. This means revenue is recognized at the time of sale to the consumer at the retail store. Aplus also has a 15-year take-or-pay fuel supply agreement with 7-Eleven, Inc. and SEI Fuel Services, Inc., where revenue is recognized as Aplus transfers control of the product to the customer. 7-Eleven, Inc. accounts for approximately 20% of both total revenues and motor fuel gallons sold.