What are the components of the transaction price in a standard Bang Cookies franchise arrangement?
Bang_Cookies Franchise · 2024 FDDAnswer from 2024 FDD Document
The transaction price in a standard franchise arrangement consists of (a) franchise/development fees; (b) Marketing, brand development and royalties Fees and (c) IT Fees; (d) Annual Conference Fees. The Company utilize ASC 606 fivesteps revenue recognition model as follows:
- x Identify the contract with the customer.
- x Identify the performance obligation in the contract.
- x Determine the transaction price.
- x Allocate the transaction price to the performance obligations.
- x Recognize revenue when (or as) each performance obligation is satisfied.
The terms of the Company's franchise agreement will be as follows:
- x The Company will grant the right to use the Company name, trademark, and system in the franchisee's franchise development business.
- x The franchisee is obligated to pay a non-refundable initial franchise fee.
- x The franchisee is obligated to pay weekly royalties, marketing, IT, and annual conference fees. Certain other fees are also outlined in the agreement.
Franchise revenues are recognized by the Company from the following different sources: The Company recognizes franchise fees as two (2) performance obligations. The first, pre-opening services, including access to manuals, assistance in site selection, and initial training, have been determined to be distinct services offered to franchisees. Pre-opening services are earned over a period using an input method of completion based on costs incurred for each franchisee at the end of each year.
The second, access to the franchise license, has been determined to be distinct. The amount allocated to the franchise license is earned over time as performance obligations are satisfied due to the continuous transfer of control to the franchisee. Franchise and development fees are paid in advance of the franchise opening, typically when entering into a new franchise or development agreement. Fees allocated to the franchise license are recognized as revenue on a straight-line basis over the term of each respective franchise agreement. Initial franchise agreement terms are typically 10 years while successive agreement terms are typically 10 years.
Source: Item 23 — RECEIPTS (FDD pages 56–245)
What This Means (2024 FDD)
According to Bang Cookies's 2024 Franchise Disclosure Document, the transaction price in a standard franchise arrangement includes several components. These are franchise or development fees, marketing, brand development and royalties fees, IT fees, and annual conference fees. Bang Cookies utilizes the ASC 606 five-step revenue recognition model to manage its revenue. This model involves identifying the contract, the performance obligations, determining the transaction price, allocating the price to the obligations, and recognizing revenue as each obligation is satisfied.
Bang Cookies grants franchisees the right to use its name, trademark, and system. In return, franchisees must pay a non-refundable initial franchise fee, as well as weekly royalties, marketing fees, IT fees, and annual conference fees. The franchise fees are recognized as two performance obligations: pre-opening services (like manuals, site selection assistance, and initial training) and access to the franchise license.
Pre-opening services are recognized as earned over a period using an input method based on costs incurred for each franchisee annually. The amount allocated to the franchise license is earned over time as performance obligations are satisfied through the continuous transfer of control to the franchisee. Initial franchise agreement terms are typically 10 years, with successive terms also typically lasting 10 years. Franchise and development fees are paid in advance of the franchise opening, usually when entering into a new franchise or development agreement.