How often does Big Apple Bagels reassess the breakage rate for gift cards?
Big_Apple_Bagels Franchise · 2025 FDDAnswer from 2025 FDD Document
Although there are no expiration dates for our gift cards, based on our analysis of historical gift card redemption patterns, we can reasonably estimate the amount of gift cards for which redemption is remote, which is referred to as "breakage." The Company recognizes gift card breakage proportional to actual gift card redemptions on a quarterly basis and the corresponding revenue is included in licensing fees and other revenue. Significant judgments and estimates are required in determining the breakage rate and will be reassessed each quarter.
Source: Item 23 — RECEIPTS (FDD pages 87–319)
What This Means (2025 FDD)
According to Big Apple Bagels' 2025 Franchise Disclosure Document, the company reassesses its gift card breakage rate each quarter. Breakage refers to the amount of gift cards that are not expected to be redeemed based on historical redemption patterns. Big Apple Bagels recognizes this breakage proportionally to actual gift card redemptions on a quarterly basis, and the corresponding revenue is included in licensing fees and other revenue.
This means that Big Apple Bagels regularly reviews and adjusts its estimates of how many gift cards will ultimately go unused. This is a standard accounting practice to accurately reflect revenue and liabilities related to gift card sales. For a franchisee, this ongoing reassessment is important because the breakage revenue is tied to licensing fees, which impacts the overall financial reporting and royalty calculations.
Because significant judgment is required to determine the breakage rate, Big Apple Bagels monitors gift card redemption patterns and adjusts the breakage rate at least four times per year. This ensures that financial statements accurately reflect the revenue earned from gift cards, and that the company's financial reporting remains compliant with accounting standards.