When does Chocolate Fish Coffee record revenue?
Chocolate_Fish_Coffee Franchise · 2024 FDDAnswer from 2024 FDD Document
turities 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 Chocolate Fish Coffee's 2024 Franchise Disclosure Document, the company recognizes revenue primarily from franchise fees, which include both one-time and recurring monthly fees. Chocolate Fish Coffee adheres to Accounting Standards Codification (ASC) Topic 606 for revenue recognition. 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.
For pre-opening activities that are not brand specific, Chocolate Fish Coffee recognizes revenue ratably as these services are rendered. These activities provide franchisees with general business information separate from the operation of a Chocolate Fish Coffee franchise. The portion of the franchisee fee not allocated to these pre-opening activities is recorded as Unearned Revenue and is recognized over the term of the franchise agreement.
Specifically, Chocolate Fish Coffee uses an adjusted market assessment approach to estimate the stand-alone selling price of pre-opening activities. The initial franchise fees and fixed consideration are allocated to the standalone selling price of training services that are not brand specific, with any residual amount allocated to the right to access Chocolate Fish Coffee's intellectual property. This approach ensures that revenue recognition aligns with the delivery of services and access to intellectual property over the life of the franchise agreement.