When does Body Brain Center recognize franchise fee revenue that was initially deferred?
Body_Brain_Center Franchise · 2025 FDDAnswer from 2025 FDD Document
ility calculation and the variable non-lease components such as maintenance, utilities, or real estate taxes are recognized as operating expenses in the period in which they are incurred.
The Company's leases primarily include real estate leases.
Operating leases are included in operating lease ROU assets, current operating lease liabilities, and non-current operating lease liabilities within the Company's balance sheets. Lease expense is recognized on a straight-line basis on the financial statements over the lease term.
The Company does not have any finance leases under ASC 842.
Deferred Revenue
Deferred revenue includes franchise fees that have been paid, but have not yet been earned. The Company will recognize these revenues when all material services or conditions relating to the franchise agreement have been substantially performed until the center is opened.
Notes to the Financial Statements December 31, 2024 and 2023
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Deferred Revenue (Continued)
Deferred revenue also includes advance payments for owner training programs which have not yet taken place. The Company will recognize training revenue when the training is provided to the participants.
Deferred revenue amounted to $19,540 and $19,540 as of December 31, 2024 and 2023, respectively.
Revenue Recognition
The Company's revenue comprises of sales from direct center as well as receipts from franchisees.
1) Revenues from franchisees
Revenues from franchisees consist of initial franchise fees, owner training fees, royalties, and advertising fund fees based on a percentage of each franchisee's program sales.
Source: Item 23 — RECEIPT (FDD pages 43–178)
What This Means (2025 FDD)
According to the 2025 Body Brain Center Franchise Disclosure Document, Body Brain Center recognizes deferred revenue, which includes franchise fees, when all material services or conditions relating to the franchise agreement have been substantially performed until the center is opened. This means that Body Brain Center does not immediately recognize the initial franchise fee as revenue when it's paid. Instead, it defers the recognition until it has fulfilled its obligations to the franchisee, primarily until the Body Brain Center location is opened. This aligns with accounting standards that require revenue to be recognized when it is earned, not necessarily when cash is received. The deferred revenue amounted to $70,540 as of December 31, 2022 and 2021.
Furthermore, the FDD states that under amendments to accounting standards, any portion of the initial fee allocated to the franchise right should be recognized over the contract term. This means that Body Brain Center spreads the recognition of the initial franchise fee over the life of the franchise agreement, rather than recognizing it all at once upon the center's opening. Owner training fee revenue is recognized upon the completion of a training program provided by Body Brain Center.
Royalties and advertising fund fees are recognized on a monthly basis and are based upon an agreed upon percentage of franchisees' program sales, as defined in the franchise agreement. Advertising fund fees are restricted for the purpose of marketing, sales promotion and promotional materials and are included in the accompanying balance sheets as restricted cash. This approach ensures that Body Brain Center's revenue recognition aligns with the delivery of services and the transfer of rights to the franchisee over time.