Does Bombs Away consider pre-opening activities as a single performance obligation?
Bombs_Away Franchise · 2024 FDDAnswer from 2024 FDD Document
The Company's primarily performance obligation under the franchise agreement mainly includes granting certain rights to access the Company's intellectual property and a variety of activities relating to opening a franchise unit, including initial training and other such activities commonly referred to collectively as "pre-opening activities", which are recognized as a single performance obligation. The Company expects that certain pre-opening activities provided to the franchisee will not be brand specific and will provide the franchisee with relevant general business information that is separate and distinct from the operation of a company-branded franchise unit. The portion of pre-opening activities that will be provided that is not brand specific is expected to be distinct as it will provide a benefit to the franchisee and is expected not to be highly interrelated or interdependent to the access of the Company's intellectual property, and therefore will be accounted for as a separate distinct performance obligation. All other pre-opening activities are expected to be highly interrelated and interdependent to the access of the Company's intellectual property and therefore will be 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.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 35)
What This Means (2024 FDD)
According to Bombs Away's 2024 Franchise Disclosure Document, the company's primary performance obligation under the franchise agreement includes granting rights to access their intellectual property and various activities related to opening a franchise unit, including initial training, collectively known as "pre-opening activities." Bombs Away recognizes these pre-opening activities as a single performance obligation. However, there are exceptions to this.
Bombs Away distinguishes between pre-opening activities that are brand-specific and those that are not. If certain pre-opening activities are not brand specific and provide the franchisee with general business information separate from the operation of a Bombs Away franchise, they are considered a separate, distinct performance obligation. This is because these non-brand-specific activities are expected to benefit the franchisee independently and are not highly interrelated with access to Bombs Away's intellectual property.
In summary, Bombs Away accounts for pre-opening activities as a single performance obligation when those activities are highly interrelated and interdependent with access to the company's intellectual property. However, pre-opening activities that are not brand specific and provide general business information are treated as a separate performance obligation, recognized as those services are rendered.