How does Big Blue Swim School account for pre-opening activities under ASU 2021-02?
Big_Blue_Swim_School Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company's primary performance obligation under the franchise agreement includes granting certain rights to access the Company's intellectual property and a variety of activities relating to opening a franchise unit, including training and other such activities commonly referred to collectively as ''pre-opening activities.'' Preopening activities consistent with those under Financial Accounting Standards Board (''FASB'') issued Accounting Standards Update (''ASU'') No. 2021-02, Franchisors - Revenue from Contracts with Customers (Subtopic 952-606) (''ASU 2021-02''), are deemed to be distinct as they provide a benefit to the franchisee and are not highly interrelated to access to the Company's intellectual property. For all other pre-opening activities, if any, the Company will determine if a certain portion of those pre-opening activities provided is not brand-specific and provides the franchisee with relevant general business information that is separate from the operation of a company-branded franchise unit. The portion of pre-opening services provided that is not brand specific is deemed to be distinct as it provides a benefit to the franchisee and is not highly interrelated or interdependent to the access to the Company's intellectual property and therefore is accounted for as a separate distinct performance obligation. All other pre-opening activities have been determined to be highly interrelated and interdependent for access to the Company's intellectual property and therefore are accounted for as a single performance obligation, which is satisfied by granting certain rights to access the Company's intellectual property over the term of each franchise agreement.
The Company estimates the stand-alone selling price of pre-opening activities using an adjusted market assessment approach. The Company first allocates the initial franchise fees and the fixed consideration under the franchise agreement to the stand-alone selling price of the pre-opening activities and the residual, if any, to the right to access the Company's intellectual property. Consideration allocated to pre-opening activities included under ASU 2021-02 is recognized when the franchised location opens. Consideration allocated to pre-opening activities, other than those included under ASU 2021-02, which are not brand-specific, is recognized ratably as those services are rendered.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 75)
What This Means (2025 FDD)
According to the 2025 FDD, Big Blue Swim School addresses pre-opening activities in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2021-02. The company considers pre-opening activities to be distinct if they benefit the franchisee and are not highly interrelated with access to Big Blue Swim School's intellectual property. These activities include training and other similar actions commonly referred to as "pre-opening activities."
For pre-opening activities not covered under ASU 2021-02, Big Blue Swim School assesses whether a portion of these activities is not brand-specific and provides the franchisee with general business information separate from the operation of a Big Blue Swim School franchise. This portion is also deemed distinct if it benefits the franchisee and is not highly interrelated or interdependent with access to the company's intellectual property. These activities are accounted for as a separate distinct performance obligation.
All other pre-opening activities that are highly interrelated and interdependent with access to Big Blue Swim School's intellectual property are accounted for as a single performance obligation. This obligation is satisfied by granting certain rights to access the company's intellectual property over the term of each franchise agreement. The consideration allocated to pre-opening activities included under ASU 2021-02 is recognized when the franchised location opens, while consideration allocated to other pre-opening activities not brand-specific is recognized ratably as those services are rendered. Big Blue Swim School estimates the stand-alone selling price of pre-opening activities using an adjusted market assessment approach, allocating initial franchise fees and fixed consideration to the stand-alone selling price of the pre-opening activities, with any residual allocated to the right to access the company's intellectual property.