To which note in the Apricot Lane FDD is the accounting policy for franchise fee recognition described?
Apricot_Lane Franchise · 2025 FDDAnswer from 2025 FDD Document
,567 | | Income taxes paid | $ | 1,984 | $ | 73,539 |
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Activity
Country Visions, Inc. markets franchises for Apricot Lanc Boutique, a fashion and accessory boutique. Franchises generally have an initial ten-year term, with two additional five-year terms at the option of the franchisee. At December 31, 2024 there were 109 franchised stores operating in the United States.
Basis of Accounting
The financial statements are prepared on the accrual method of accounting in accordance with Generally Accepted Accounting Principles in the United States of America (U.S. GAAP).
Revenue Recognition
Revenues from franchise fees are recognized when all services specified by the franchise agreement have been performed, generally when the franchisee's store opens. These services generally include site selection, lease negotiation, marketing, training of the franchisee, training of their employees, and store opening assistance. The initial franchise fee for 2024 and 2023 is $39,50
Source: Item 23 — RECEIPTS (FDD pages 51–222)
What This Means (2025 FDD)
According to the 2025 Apricot Lane FDD, the accounting policy for franchise fee recognition is described in Note 1, which is titled "SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES". This note outlines the general accounting practices that Apricot Lane follows.
Specifically, under the section "Revenue Recognition" within Note 1, the FDD explains when and how Apricot Lane recognizes revenues from franchise fees. It states that revenues are recognized when all services specified in the franchise agreement have been performed, which typically occurs when the franchisee's store opens. These services include site selection, lease negotiation, marketing, training of the franchisee and their employees, and store opening assistance.
For prospective franchisees, this means that Apricot Lane does not immediately recognize the initial franchise fee as revenue upon payment. Instead, they defer the recognition until they have fulfilled their obligations to support the franchisee in setting up the business. This accounting practice aligns with standard accounting principles, ensuring that revenue is recognized when it is earned and the related services have been provided. The initial franchise fee for 2024 and 2023 is $39,500, and the franchise fee for additional stores for an existing franchisee is $20,000.