How does Big Apple Bagels recognize revenue allocated to preopening activities?
Big_Apple_Bagels Franchise · 2025 FDDAnswer from 2025 FDD Document
Under the terms of our franchise agreements, the Company typically promises to provide franchise rights, pre-opening services such as blueprints, operational materials, planning and functional training courses, and ongoing services, such as management of the marketing fund. The Company considers certain pre-opening activities and the franchise rights and related ongoing services to represent two separate performance obligations. The franchise fee revenue has been allocated to the two separate performance obligations using a residual approach. The Company has estimated the value of performance obligations related to certain preopening activities deemed to be distinct based on cost plus an applicable margin, and assigned the remaining amount of the initial franchise fee to the franchise rights and ongoing services. Revenue allocated to preopening activities is recognized when (or as) these services are performed. Revenue allocated to franchise rights and ongoing services is deferred until the store opens, and recognized on a straight-line basis over the duration of the agreement, as this ensures that revenue recognition aligns with the customer's access to the franchise right.
Source: Item 23 — RECEIPTS (FDD pages 87–319)
What This Means (2025 FDD)
According to Big Apple Bagels' 2025 Franchise Disclosure Document, the company recognizes revenue allocated to pre-opening activities when the services are performed. These pre-opening activities include providing blueprints, operational materials, planning, and functional training courses. Big Apple Bagels considers these activities, along with franchise rights and ongoing services, as separate performance obligations.
The franchise fee revenue is allocated to these separate performance obligations using a residual approach. This means Big Apple Bagels estimates the value of the pre-opening activities based on cost plus an applicable margin. The remaining amount of the initial franchise fee is then assigned to the franchise rights and ongoing services.
Revenue allocated to franchise rights and ongoing services is deferred until the store opens. It is then recognized on a straight-line basis over the duration of the agreement. This approach ensures that revenue recognition aligns with the franchisee's access to the franchise right over the term of the agreement.