What Accounting Standards Update (ASU) did Chesters adopt regarding revenue from contracts with customers?
Chesters Franchise · 2025 FDDAnswer from 2025 FDD Document
or those goods or services.
Sales tax collected from customers is not included in revenue, but rather recorded as a liability due to the respective taxing authorities.
On January 28, 2021, the FASB issued Accounting Standards Update (ASU) 2021-02, Franchisors—revenue from Contracts with Customers, which allows a nonpublic company franchisor to use a practical expedient when identifying performance obligations in its contracts with customers. The practical expedient allows the private company franchisor to treat certain preopening services that are provided to the franchisees as distinct from the franchise license. The preopening services are as follows: (a) training of the franchisee's personnel or the franchisee and preparation (b) advise on operations, new developments, techniques and improvements in restaurant management, food preparation, sales promotion and service. The Company has applied the practical expedient retrospectively to all periods presented.
Franchise agreements typically require an upfront franchise fee paid upon opening of a store. Upfront franchise fees are typically billed and paid when a new franchise agreement becomes effective. The Company has determined that the services provided in exchange for upfront franchise fees, which primarily relate to pre-opening support, are distinct from the ongoing services provided to franchisees. Additionally, under ASU 2021-02, upfront franchise fees are recognized upon opening of the franchise. Franchise fees for th
Source: Item 21 — **FINANCIAL STATEMENTS (FDD page 48)
What This Means (2025 FDD)
According to Chesters's 2025 Franchise Disclosure Document, the company adopted FASB Accounting Standards Update (ASU) 2021-02, Franchisors—revenue from Contracts with Customers, on January 28, 2021. This update allows Chesters, as a nonpublic company franchisor, to use a practical expedient when identifying performance obligations in its contracts with customers. This practical expedient lets Chesters treat certain preopening services provided to franchisees as distinct from the franchise license.
The preopening services covered by this update include training of the franchisee's personnel or the franchisee themselves, as well as advice on operations, new developments, techniques, and improvements in restaurant management, food preparation, sales promotion, and service. Chesters has applied this practical expedient retrospectively to all periods presented in its financial statements.
For a prospective Chesters franchisee, this accounting update means that the initial franchise fee, typically required upon opening a store, is recognized as revenue by Chesters upon the franchise opening. The FDD states that Chesters determined that the services provided in exchange for upfront franchise fees, which primarily relate to pre-opening support, are distinct from the ongoing services provided to franchisees. Franchise fees for the years ended December 31, 2023 and 2022 was $286,274 and $254,500, respectively, and is included in sales in the accompanying statements of income and members' equity.