Has Bombs Away elected to adopt the new standard provided by ASU 2021?

According to the 2024 Bombs Away FDD, Bombs Away has elected to adopt the new standard provided by ASU 2021. 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 new practical expedient that permits private company franchisors to account for preopening services provided to a franchisee as distinct from the franchise license if the services are consistent with those included in a predefined list within the guidance.

Bombs Away's primary performance obligation under the franchise agreement includes granting rights to access their intellectual property and activities related to opening a franchise unit, such as initial training, collectively known as "pre-opening activities." These activities are recognized as a single performance obligation. However, Bombs Away expects that certain pre-opening activities will not be brand-specific and will provide franchisees with general business information separate from the Bombs Away brand.

The portion of pre-opening activities that are not brand-specific will be treated as a separate, 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 that are highly interrelated and interdependent with access to Bombs Away's intellectual property will be accounted for as a single performance obligation, satisfied by granting rights to access the intellectual property over the franchise agreement term.

For a prospective franchisee, this accounting treatment means that Bombs Away recognizes revenue from franchise fees and pre-opening activities in a specific way, allocating portions of the fees to different performance obligations based on whether the activities are brand-specific or not. This approach could affect how Bombs Away's financial performance is reported and how franchise fees are recognized over time.