How does Carbones Pizzeria allocate the transaction price to the performance obligations in the contract?
Carbones_Pizzeria Franchise · 2025 FDDAnswer from 2025 FDD Document
Revenue from contracts with customers is recognized using the following five steps:
- Identify the contract(s) with a customer;
- Identity the performance obligations in the contract;
- Determine the transaction price;
- Allocate the transaction price to the performance obligations in the contract; and
- Recognize revenue when (or as) the Company satisfies a performance obligation.
Source: Item 22 — CONTRACTS (FDD page 30)
What This Means (2025 FDD)
According to Carbones Pizzeria's 2025 Franchise Disclosure Document, the company uses a five-step process to recognize revenue from contracts. Step four involves allocating the transaction price to the performance obligations in the contract. This allocation is a key part of determining how and when Carbones Pizzeria recognizes revenue.
Carbones Pizzeria recognizes revenue when control of the promised products or services is transferred to customers. The amount of revenue recognized reflects the consideration the company expects to receive in exchange for those products or services. This means that the transaction price, which is the amount Carbones Pizzeria expects to be paid, must be carefully allocated to each specific performance obligation outlined in the franchise agreement.
For initial and renewal franchise fees, Carbones Pizzeria recognizes these fees over the contractual term of the franchise agreement, which is 10 years. This indicates that the initial and renewal franchise fees are allocated over the entire period the franchisee is allowed to use the Carbones Pizzeria name and menu. Royalties, which are a percentage of sales from franchised locations, are recognized each week based on reported franchisee sales.