Has Bombs Away elected to adopt the new accounting standard for franchisors?

According to Bombs Away's 2024 Franchise Disclosure Document, Bombs Away has elected to adopt the new accounting standard for franchisors. Specifically, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) to ASC 606, Franchisors—'Revenue from Contracts with Customers (Subtopic 952-606): Practical Expedient' in 2021. This update provides a practical way for private company franchisors to account for preopening services provided to a franchisee as distinct from the franchise license if the services align with a predefined list within the guidance.

Bombs Away's adoption of this standard means that they can account for certain pre-opening services separately from the franchise license. These pre-opening activities include initial training and other activities related to opening a franchise unit. Bombs Away recognizes these activities as a single performance obligation. However, Bombs Away expects that some pre-opening activities will not be brand-specific and will provide franchisees with general business information, which will be accounted for as a separate distinct performance obligation.

For a potential Bombs Away franchisee, this accounting method affects how the initial franchise fees are allocated and recognized. Bombs Away will allocate the initial franchise fees and fixed consideration to the stand-alone selling price of training services that are not brand-specific. Any remaining amount will be allocated to the right to access Bombs Away's intellectual property. The consideration allocated to pre-opening activities that are not brand-specific is recognized as those services are rendered. The remaining franchisee fee not allocated to pre-opening activities is recorded as Unearned Revenue and will be recognized over the term of the franchise agreement.

This accounting treatment allows Bombs Away to recognize revenue from pre-opening activities as they provide those services, rather than deferring the entire franchise fee recognition over the life of the franchise agreement. This approach may provide a more accurate reflection of the value provided to the franchisee at different stages of the franchise relationship. It also aligns with the accounting standards update issued by FASB to simplify revenue recognition for franchisors.