When does Ben Jerrys recognize revenue related to the advertising fees from franchisees?
Ben_Jerrys Franchise · 2025 FDDAnswer from 2025 FDD Document
Franchise agreements typically require the franchisee to contribute to a national franchisee marketing fund (2% Fund) on a monthly basis based on 2% of franchisee gross sales, which represents a portion of the consideration received for the single performance obligation of the franchise license. The 2% Fund receipts are required to be spent on costs that meet the definition of advertising costs under ASC 720- 35. The Company may make a policy election whether to allow a net surplus in the income statement or whether the costs of advertising would be accrued up to advertising contributions recognized in revenue by applying the guidance on cooperative advertising by analogy (when the fund is in an underspent position), and an overspent position would not result in the acceleration of revenue or a deferral of costs. Per the Company's initial Franchisee Development Agreements, the Company must accrue any net surplus 2% Fund contributions but not record revenue for any overspent expenses from the 2% Fund. The Company recognizes revenue related to the advertising fees in the month that the franchisee recognizes its gross sales, as part of the overall performance obligation related to the granting of rights to use the Company's intellectual property.
Source: Item 21 — FINANCIAL STATEMENTS (FDD pages 89–133)
What This Means (2025 FDD)
According to Ben Jerrys' 2025 Franchise Disclosure Document, the company recognizes revenue related to advertising fees in the same month that a franchisee recognizes their gross sales. Franchise agreements typically require franchisees to contribute to a national franchisee marketing fund, known as the 2% Fund, on a monthly basis. This contribution is based on 2% of the franchisee's gross sales and is considered a portion of the consideration received for the single performance obligation of the franchise license.
The 2% Fund receipts are specifically designated for advertising costs as defined under ASC 720-35. Ben Jerrys has the option to either allow a net surplus in the income statement or accrue advertising costs up to the amount of advertising contributions recognized as revenue. This is determined by applying guidance on cooperative advertising. According to the Franchisee Development Agreements, Ben Jerrys must accrue any net surplus 2% Fund contributions but will not record revenue for any overspent expenses from the 2% Fund.
In simpler terms, Ben Jerrys collects advertising fees from franchisees based on a percentage of their sales and uses these funds for advertising activities. The revenue from these advertising fees is recognized in the same month that the franchisee makes the sales. Ben Jerrys is obligated to spend these fees on behalf of the franchise shops, and any surplus or deficit in the advertising fund is managed according to specific accounting guidelines.