When does Chocolate Fish Coffee recognize consideration allocated to pre-opening activities that are not brand specific?
Chocolate_Fish_Coffee 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 the 2024 Franchise Disclosure Document, Chocolate Fish Coffee recognizes consideration allocated to pre-opening activities that are not brand specific ratably as those services are rendered. These pre-opening activities offer general business information separate and distinct from the operation of a Chocolate Fish Coffee branded franchise.
Specifically, Chocolate Fish Coffee 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. The residual amount, if any, is allocated to the right to access Chocolate Fish Coffee's intellectual property.
Furthermore, Chocolate Fish Coffee has adopted the Accounting Standards Update (ASU) to ASC 606, Franchisors—'Revenue from Contracts with Customers (Subtopic 952-606): Practical Expedient'. This allows Chocolate Fish Coffee, as a private company franchisor, 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 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.