How does Bananas Smoothies Frozen Yogurt account for revenues and expenses related to the advertising fund?
Bananas_Smoothies_Frozen_Yogurt Franchise · 2025 FDDAnswer from 2025 FDD Document
ies are determined at the time of the agreement and recognized monthly.
Transfer fees paid in lieu of franchise fees are recognized on a straight-line basis over the term of the franchise agreement. Transfer fees paid in addition to a franchise fee are recognized when fees are charged.
Termination fees are recognized upon the termination date.
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue recognition (continued)
All other fees are recognized as services are rendered or when payment is received.
Advertising fund
The Company maintains an advertising fund established to collect and administer funds contributed for use in advertising and promotional programs for franchise units. Advertising fund revenues are collected from franchisees based on a percentage of franchisee gross revenues. The Company has determined that it acts as a principal in the collection and administration of the advertising fund and therefore recognizes the revenues and expenses related to the advertising fund on a gross basis. The Company has determined that the right to access its intellectual property and administration of the advertising fund are highly interrelated and therefore are accounted for as a single performance obligation. As a result, revenues from the advertising fund represent salesbased royalties related to the right to access the Company's intellectual property, which are recognized as franchisee sales occur. Franchisees contribute amounts up to 1% of sales towards an advertising fund maintained on behalf of the franchisees. When advertising fund fees exceed the related advertising fund expenses in a reporting period, advertising costs are accrued up to the amount of advertising fund revenues recognized
Royalties and advertising fees receivable
Royalties and advertising fees receivable are stated at the amount the Company expects to collect. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its franchisees to make required payments. The Company assesses collectibility by reviewing accounts receivable and its contract assets on a collective basis where similar risk characteristics exist.
Source: Item 23 — RECEIPT (FDD pages 58–231)
What This Means (2025 FDD)
According to the 2025 FDD, Bananas Smoothies Frozen Yogurt recognizes revenues and expenses related to the advertising fund on a gross basis, meaning they record the full amount of both revenues and expenses rather than netting them. The company considers itself the principal in collecting and administering the advertising fund. Franchisees contribute up to 1% of their sales to the advertising fund. Bananas Smoothies Frozen Yogurt considers the right to access its intellectual property and the administration of the advertising fund as a single performance obligation. Therefore, revenues from the advertising fund are treated as sales-based royalties related to the right to use the company's intellectual property and are recognized as franchisee sales occur.
When advertising fund fees exceed the related advertising fund expenses in a reporting period, Bananas Smoothies Frozen Yogurt accrues advertising costs up to the amount of advertising fund revenues recognized. This indicates that the company aims to align advertising expenses with the revenue generated from the advertising fund, ensuring that the fund is used effectively for its intended purpose.
For the year ended December 29, 2024, advertising fund revenues were $49,793 and advertising fund expenses were $51,351. For the year ended December 31, 2023, advertising fund revenues were $60,608 and advertising fund expenses were $63,847. For the year ended December 25, 2022, advertising fund revenues were $71,085 and advertising fund expenses were $64,324. These figures show the actual amounts collected and spent on advertising over the past three fiscal years.
All sums paid by the franchisee to the fund are maintained in a separate account from the other funds of the franchisor and shall not be used to defray any of the franchisor's general operating expenses, except for reasonable administrative costs. A financial review of the fund's operation is prepared annually and shall be made available to the franchisee upon request.