Did the adoption of ASU-2016-13 have a material impact on Canine Dimensions' financial statements?
Canine_Dimensions Franchise · 2025 FDDAnswer from 2025 FDD Document
spectively.
Note 5 Franchise Revenue Recognition
The Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, which supersedes the existing transaction and industry-specific revenue recognition guidelines. The new guidance requires the recognition of revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Originally the ASU was effective for fiscal years beginning after December 15, 2018 however due to the worldwide pandemic, implementation was delayed a year.
Note 5 Franchise Revenue Recognition (Continued)
After assessing the recent guidance, the Company concludes the use of brand name and logo and ongoing access to the operating procedures manual as the core components of the franchise license. The Company further concludes the initial training services and territory fee are distinct performance obligations that are one-time in nature and completed upon such date that franchisee's training is completed.
Therefore, the Company concludes that the franchise agreement includes distinct performance obligations for the use of its brand name and logo, supported by marketing and other support services, for the life of each ten-year franchise agreement, while the obligations of the Company terminate for training services and territory fee upon the conclusion of the initial training.
As such the Company recognizes as revenue upon the completion of training $12,500. The balance of initial fees results in $35,000 ratably recognized over the ten-year or fiveyear term of the franchise agreement.
The Company also enters into renewals of existing franchise agreements without the requirement for the initial expenses incurred on entering int a new franchise agreem
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 35)
What This Means (2025 FDD)
According to Canine Dimensions' 2025 Franchise Disclosure Document, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, which supersedes existing revenue recognition guidelines. This new guidance mandates that revenue recognition accurately reflect the transfer of promised goods or services to customers, aligning with the consideration the entity expects to receive in exchange. The original effective date for this ASU, for fiscal years beginning after December 15, 2018, was delayed by a year due to the worldwide pandemic.
Canine Dimensions has assessed this guidance and determined that the core components of the franchise license are the use of the brand name and logo, along with ongoing access to the operating procedures manual. The company also considers initial training services and the territory fee as distinct, one-time performance obligations that are fulfilled upon completion of the franchisee's training.
As a result, Canine Dimensions recognizes $12,500 as revenue upon the completion of training. The remaining initial fees, amounting to $35,000, are recognized ratably over the term of the franchise agreement, which is either ten or five years. For franchise agreement renewals that do not require incurring initial expenses, Canine Dimensions requires a renewal fee. While the ASU number cited is not ASU-2016-13, the FDD does state that the company has adopted ASU 2014-09, and describes how that adoption has impacted revenue recognition.