What is Chocolate Fish Coffee's primary performance obligation under the franchise agreement?
Chocolate_Fish_Coffee Franchise · 2024 FDDAnswer from 2024 FDD Document
The Company's primarily performance obligation under the franchise agreement mainly includes granting certain rights to access the Company's intellectual property and a variety of activities relating to opening a franchise unit, including initial training and other such activities commonly referred to collectively as "pre-opening activities", which are recognized as a single performance obligation. The Company expects that certain pre-opening activities provided to the franchisee will not be brand specific and will provide the franchisee with relevant general business information that is separate and distinct from the operation of a company-branded franchise unit. The portion of pre-opening activities that will be provided that is not brand specific is expected to be distinct as it will provide a benefit to the franchisee and is expected not to be highly interrelated or interdependent to the access of the Company's intellectual property, and therefore will be accounted for as a separate distinct performance obligation. All other pre-opening activities are expected to be highly interrelated and interdependent to the access of the Company's intellectual property and therefore will be accounted for as a single performance obligation, which is satisfied by granting certain rights to access the Company's intellectual property over the term of each franchise agreement.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 41)
What This Means (2024 FDD)
According to Chocolate Fish Coffee's 2024 Franchise Disclosure Document, the company's primary performance obligation under the franchise agreement includes granting certain rights to access the company's intellectual property. This also includes a variety of activities related to opening a franchise unit, such as initial training and other pre-opening activities. These activities are recognized as a single performance obligation.
The FDD specifies that some pre-opening activities provided to the franchisee will not be brand-specific. These activities will provide the franchisee with relevant general business information that is separate and distinct from the operation of a Chocolate Fish Coffee-branded franchise unit. These non-brand-specific pre-opening activities are accounted for as a separate distinct performance obligation because they benefit the franchisee and are not highly interrelated or interdependent with access to the company's intellectual property.
All other pre-opening activities are considered highly interrelated and interdependent with access to Chocolate Fish Coffee's intellectual property. Therefore, they are accounted for as a single performance obligation. This obligation is fulfilled by granting certain rights to access the company's intellectual property over the term of each franchise agreement. This means that Chocolate Fish Coffee recognizes revenue as it provides access to its brand, systems, and knowledge throughout the duration of the franchise agreement.