How is the balance of the initial fees for a Canine Dimensions franchise recognized as revenue?
Canine_Dimensions Franchise · 2025 FDDAnswer from 2025 FDD Document
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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
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 35)
What This Means (2025 FDD)
According to Canine Dimensions' 2025 Franchise Disclosure Document, the company recognizes franchise revenue based on Accounting Standards Update (ASU) No. 2014-09. Canine Dimensions identifies the use of its brand name and logo, along with ongoing access to the operating procedures manual, as the core components of the franchise license. The initial training services and territory fee are considered distinct, one-time performance obligations that are completed when the franchisee's training concludes.
Upon completion of the franchisee's training, Canine Dimensions recognizes $12,500 as revenue. The remaining balance of the initial fees, amounting to $35,000, is recognized ratably over either the ten-year or five-year term of the franchise agreement. This means that Canine Dimensions spreads the recognition of this $35,000 over the duration of the franchise term, recognizing a portion of it as revenue each year.
For franchisees, this revenue recognition policy means that Canine Dimensions does not recognize the entire initial franchise fee as revenue upfront. Instead, a significant portion ($35,000) is recognized gradually over the term of the agreement. This approach aligns the revenue recognition with the ongoing services and brand usage provided to the franchisee throughout the franchise term. This accounting practice is common in the franchise industry, as it reflects the ongoing support and brand access that the franchisor provides.