How does Best In Class Education Center recognize revenue from pre-opening services?
Best_In_Class_Education_Center Franchise · 2025 FDDAnswer from 2025 FDD Document
assets and liabilities at the date of our financial statements and the reported amounts of revenues, costs, and expenses during the reporting period. Actual results could differ significantly from those estimates. It is at least reasonably possible that a change in the estimates will occur in the near term.
G. Reclassification
Certain reclassifications have been made to the 2023 financial statements in order to conform to the 2024 presentation. There were no changes to previously issued financial statements as a result of the reclassifications.
H. Advertising and Marketing
Advertising and marketing costs are charged to operations in the year incurred.
I. Revenue Recognition
Revenue is recognized in accordance with ASC Topic 606, Revenue from Contracts with Customers. The Company adopted ASU 2021-02 Franchisors - Revenue from Contracts with Customers (Subtopic 952-606) effective with the application of ASC Topic 606. The ASU provides a practical expedient to ASU2014-09 Revenue from contracts with Customers (Topic 606). The new guidance allows franchisors to simplify the application of the guidance about identifying performance obligations for franchisors that perform pre-opening services by allowing a franchisor to account for pre-opening services as distinct if they are consistent with those included in a predefined list of pre-opening services.
Franchise Fees
The franchise arrangement between the Company and each franchise owner is documented in the form of a franchise agreement and, in select cases, a development agreement. The franchise arrangement requires the Company as franchisor to perform various activities to support the brand and does not involve the direct transfer of goods and services to the franchise owner as a customer. Activities performed by the Company before opening are distinguished from the franchise license. Therefore, the Company recognizes franchise fees as two performance obligations. The nature of the Company's promise in granting the franchise license is to provide the franchise owner with access to the brand's intellectual property over the term of the franchise arrangement.
Source: Item 23 — RECEIPT (FDD pages 47–204)
What This Means (2025 FDD)
According to Best In Class Education Center's 2025 Franchise Disclosure Document, revenue is recognized following ASC Topic 606, which covers revenue from contracts with customers. The company has adopted ASU 2021-02, which provides a practical way to apply ASC Topic 606, especially for franchisors dealing with pre-opening services. This allows Best In Class Education Center to account for pre-opening services distinctly if they align with a predefined list of such services.
For Best In Class Education Center, the franchise arrangement involves activities to support the brand, distinguishing pre-opening activities from the franchise license itself. Consequently, franchise fees are recognized as two separate performance obligations. The company's promise involves granting the franchisee access to the brand's intellectual property throughout the franchise term.
The transaction price in a standard franchise arrangement includes franchise/development fees, marketing, brand development and royalties fees, IT fees, and annual conference fees. Best In Class Education Center uses a five-step revenue recognition model: identifying the contract, identifying performance obligations, determining the transaction price, allocating the price to the obligations, and recognizing revenue as each obligation is fulfilled.