What is the definition of 'pre-opening activities' for a Bombs Away franchise?
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 the 2024 Bombs Away FDD, pre-opening activities encompass a range of actions related to opening a franchise unit, including initial training. These activities are considered a primary performance obligation under the franchise agreement, along with granting rights to access Bombs Away's intellectual property.
Bombs Away distinguishes between pre-opening activities that are brand-specific and those that are not. Activities that are not brand-specific provide franchisees with general business information separate from the operation of a Bombs Away franchise. These non-brand-specific activities are treated as a distinct performance obligation because they benefit the franchisee and are not highly interrelated or interdependent with access to Bombs Away's intellectual property.
All other pre-opening activities are considered highly interrelated and interdependent with access to Bombs Away's intellectual property. These activities are accounted for as a single performance obligation, which is fulfilled by granting rights to access the company's intellectual property over the term of the franchise agreement. This accounting approach reflects how Bombs Away recognizes revenue related to these activities over the life of the franchise agreement.