When is the performance obligation for royalties satisfied by Beard Papas?
Beard_Papas Franchise · 2025 FDDAnswer from 2025 FDD Document
assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the period. Actual results could differ from those estimates.
Revenue Recognition
Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflect the consideration the Company expects to receive in exchange for those products or services.
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 restaurant, 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 the Company-Owned Restaurant
Revenues from sales of food and beverages at the company-owned restaurant 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 revenue recognition for distribution revenues varies depending on the contract terms. Distribution revenues for franchise stores 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. 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 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, revenue recognition occurs upon the transfer of control of promised products or services to customers, reflecting the consideration the company expects to receive. A performance obligation involves transferring distinct goods or services to the customer and is the basis for revenue recognition under U.S. GAAP. The transaction price is allocated to each distinct performance obligation and recognized as revenue when the obligation is satisfied.
Beard Papas's revenues are mainly derived from company-owned restaurants, distribution, commission income, and franchise fees. For company-owned restaurants, revenue from food and beverage sales is recognized when the items are served to customers. Distribution revenue recognition varies by location; it occurs upon receipt by franchisees in the United States, upon shipment to franchisees in Canada, and upon delivery at U.S. shipping docks for international locations. The company satisfies its performance obligations when control of the products is transferred, allowing customers to direct the use and obtain the economic benefits of the goods.
Commission income, generated through an agreement with JFC International Inc. for distributing foods to domestic Beard Papas locations, is recognized when the rebate is earned each period as the underlying sales by JFC occur. However, the excerpt does not specify when the performance obligation for royalties is satisfied. A prospective franchisee should ask Beard Papas when the performance obligation for royalties is satisfied.