How does Care Plus Medical Ucc estimate the stand-alone selling price of pre-opening activities?
Care_Plus_Medical_Ucc Franchise · 2024 FDDAnswer from 2024 FDD Document
The Company estimates the stand-alone selling price of pre-opening activities using an adjusted market assessment approach. The Company will first allocate the initial franchise fees and the fixed consideration, under the franchise agreement to the standalone selling price of the training services that are not brand specific and the residual, if any, to the right to access the Company's intellectual property. Consideration allocated to pre-opening activities, which are not brand specific are recognized ratably as those services are rendered. Consideration allocated to pre-opening activities included under Accounting Standards Update (ASU) to ASC 606, Franchisors—'Revenue from Contracts with Customers (Subtopic 952-606): Practical Expedient' is recognized when the related services have been rendered.
The remaining franchisee fee not allocated to pre-opening activities are recorded as Unearned Revenue and will be recognized over the term of the franchise agreement.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 41)
What This Means (2024 FDD)
According to Care Plus Medical Ucc's 2024 Franchise Disclosure Document, the company estimates the stand-alone selling price of pre-opening activities using an adjusted market assessment approach. Care Plus Medical Ucc first allocates the initial franchise fees and any fixed consideration under the franchise agreement to the stand-alone selling price of training services that are not brand-specific. Any residual amount is then allocated to the right to access Care Plus Medical Ucc's intellectual property.
Consideration allocated to pre-opening activities that are not brand-specific is recognized ratably as those services are rendered. For pre-opening activities included under the Accounting Standards Update (ASU) to ASC 606, 'Revenue from Contracts with Customers (Subtopic 952-606): Practical Expedient', consideration is recognized when the related services have been rendered. This means that Care Plus Medical Ucc recognizes revenue from these activities as they provide the services to the franchisee.
The remaining franchisee fee that is not allocated to pre-opening activities is recorded as Unearned Revenue. This unearned revenue will be recognized over the term of the franchise agreement. This accounting treatment reflects the fact that Care Plus Medical Ucc is providing ongoing access to its intellectual property and support throughout the franchise term, and revenue is recognized as these services are delivered over time.