According to Beard Papas, what constitutes a performance obligation?
Beard_Papas Franchise · 2025 FDDAnswer from 2025 FDD Document
A performance obligation is a promise in a contract to transfer a distinct goods or service to the customer and is the basis of revenue recognition in accordance with U.S GAAP. A contract's transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.
The Company's revenues are mainly composed of a) revenue from the Company-owned restaurants, b) distribution revenue, c) commission income and d) franchise fees.
(A Wholly-Owned Subsidiary of Nagatanien Holdings Co., Ltd.)
Notes to Financial Statements (continued)
a) Revenue from Company-Owned Restaurants
Revenues from sales of food and beverages at company-owned restaurants are recognized at the point in time when they are served to customers.
b) Distribution Revenue
The Company requires its franchised stores to purchase food and packaging products and restaurant equipment through its established distribution network. The timing of income recognition for distribution revenues varies depending on the contract terms. Distribution revenues for franchise stores located in the United States are recognized upon receipt of the products by the franchisees. Distribution revenues for franchise stores located in Canada are recognized upon shipment of goods to franchisees. Distribution revenues for franchise stores in other international locations are recognized upon delivery of the products at the U.S. shipping docks. The Company satisfies performance obligations when control of the products is passed to customers, which is the point in time that customers are able to direct the use of and obtain substantially all of the remaining economic benefit of the goods.
c) Commission Income
Beginning April 1, 2018, the Company entered into a commission rate agreement with JFC International Inc. ("JFC"), an Asian foods importer, to distribute various foods to all domestic Beard Papa's® locations. The Company charges JFC monthly commission fees based upon various established rebate rates, as well as additional volume rebates on sales of certain products. The rebate rates and amounts are determined by the rebate agreement. Commission income is recognized at the point in time when the rebate is earned each period as the underlying sales by JFC occur.
Source: Item 23 — RECEIPTS (FDD pages 58–275)
What This Means (2025 FDD)
According to Beard Papas's 2025 Franchise Disclosure Document, a performance obligation is defined as a promise within a contract to transfer distinct goods or services to a customer. This concept is fundamental to revenue recognition under U.S. GAAP (Generally Accepted Accounting Principles). The transaction price of a contract is allocated to each of these distinct performance obligations, and revenue is recognized as each obligation is fulfilled. For Beard Papas, this definition is important for understanding how the company recognizes revenue from various sources.
Beard Papas's revenues are primarily derived from several key areas: revenue from company-owned restaurants, distribution revenue, commission income, and franchise fees. For company-owned restaurants, revenue is recognized at the point of sale when food and beverages are served to customers. In terms of distribution revenue, Beard Papas requires its franchised stores to purchase food, packaging products, and restaurant equipment through its established distribution network. The timing of revenue recognition for distribution varies by location; it's recognized upon receipt of products by franchisees in the United States, upon shipment in Canada, and upon delivery at U.S. shipping docks for other international locations.
Furthermore, Beard Papas generates commission income through an agreement with JFC International Inc., where they distribute various foods to domestic Beard Papa's locations. Commission income is recognized when the rebate is earned each period as the underlying sales by JFC occur. Understanding these performance obligations and revenue recognition methods is crucial for prospective franchisees as it provides insight into how Beard Papas manages its finances and ensures compliance with accounting standards. This information can help franchisees better understand their financial relationship with the franchisor and the factors that influence revenue recognition.