What accounting standards codification (ASC) does Bevaris Alliance apply for the practical expedient regarding pre-opening services?
Bevaris_Alliance Franchise · 2024 FDDAnswer from 2024 FDD Document
States of America.
Cash consists of cash and money market funds which are considered to be cash or cash equivalents.
Deferred Franchise Development Costs. Costs incurred in connection with the development of the franchise concept, offering documents and operations manuals have been deferred. The costs are being amortized using the straight-line method over the 5-year estimated useful life of the asset. Such amortization will begin when franchise sales commence.
Initial franchise fees and royalties. Initial franchise fee is recognized when the obligations required by the franchise agreement has been substantially performed by the Company which is when the franchisee begins operating the franchised business. Initial franchise fees is $5,000 for the first franchise, $3,750 for the second franchise and $
Source: Item 23 — RECEIPT (FDD pages 22–88)
What This Means (2024 FDD)
According to the 2024 FDD, Bevaris Alliance applies the practical expedient under ASC 952-606-25-2. This relates to how the company accounts for pre-opening services provided to franchisees.
Specifically, Bevaris Alliance treats the pre-opening services as a single performance obligation. These services include site selection, operations manuals, marketing plans, a company-sponsored internet site, initial training, and other support necessary for the franchisee to begin operations.
By using this practical expedient, Bevaris Alliance recognizes the initial franchise fee as revenue when the franchisee begins operating the franchised business, signifying that the company has substantially performed its obligations under the franchise agreement. The initial franchise fee is $5,000 for the first franchise, $3,750 for the second, and $2,500 for each additional franchise.