Under what conditions does Care Plus Medical Ucc recognize revenue?
Care_Plus_Medical_Ucc Franchise · 2024 FDDAnswer from 2024 FDD Document
ties of three months or less when purchased.
Revenue Recognition
Revenues are primarily derived from franchise fees (one-time and recurring monthly fees). In accordance with Accounting Standards Codification (ASC) Topic 606, Revenue will be recognized when persuasive evidence of an arrangement exists, delivery has occurred, or services have been rendered, the seller's price to the buyer is fixed or determinable, and collectability is reasonable assured. The determination of whether fees and fixed or determinable and collection is reasonable assured involves the use of assumptions. Arrangement terms and customer information are evaluated to ensure that these criteria are met prior to recognition of revenue.
Specifically for franchisors, The Financial Accounting Standards Board (FASB) has issued an Accounting Standards Update (ASU) to ASC 606, Franchisors—'Revenue from Contracts with Customers (Subtopic 952-606): Practical Expedient' in 2022 which 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. The Company has elected to adopt this new standard.
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 primarily derives revenue from franchise fees, which include one-time and recurring monthly fees. Care Plus Medical Ucc recognizes revenue in accordance with Accounting Standards Codification (ASC) Topic 606. This means that revenue is recognized when there is persuasive evidence of an arrangement, delivery has occurred or services have been rendered, the price is fixed or determinable, and collectability is reasonably assured. The determination of whether these criteria are met involves the use of assumptions and the evaluation of arrangement terms and customer information.
Care Plus Medical Ucc estimates the stand-alone selling price of pre-opening activities using an adjusted market assessment approach. The company allocates the initial franchise fees and fixed consideration under the franchise agreement to the stand-alone selling price of training services that are not brand specific. Any residual amount is 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. 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 is recorded as Unearned Revenue and will be recognized over the term of the franchise agreement. This means that Care Plus Medical Ucc defers the recognition of revenue for these fees until the services or rights associated with them have been provided to the franchisee over the life of the franchise agreement. This is a common practice in franchising, as the initial franchise fee often covers ongoing support and brand access in addition to the initial setup.