What accounting standard does Cr3 American Exteriors use for revenue recognition?
Cr3_American_Exteriors Franchise · 2025 FDDAnswer from 2025 FDD Document
The Financial Accounting Standards Board ("FASB") issued codification Topic 606, Revenue from Contracts with Customers (ASC 606). Under ASC 606, the franchisor must determine if the pre-opening activities contain any distinct goods or services, known as performance obligations, and then allocate the initial franchise fees to those performance obligations using the stand-alone selling price of the goods or services. The Company has instituted ASC 606 using the full retrospective approach. The franchise fee revenue is recognized equally over a ten-year period, amortized monthly based on the contract signing date.
The Company's revenues consist of fees from franchises such as initial franchise fees, royalties, marketing fees, area representative fees, and other fees. The franchise fees are initially deferred revenue and recognized monthly. If the contract is signed before the fifteenth day of the month, half of the monthly accrual amount is recognized. If the contract is signed on or after the fifteenth day of the month, the entire month of the accrual is recognized. The royalty revenue and other fees are recognized when earned and are based on a percentage of gross sales of each individual franchise according to the franchise contract. The Company is obligated to provide the franchise with specific performances, including name and trademark use, as outlined in the franchise disclosure document. The initial franchise fee: is not refundable; is typically collected upon contract signing; and, future allocations of the initial franchise fees have no risk of impairment. When a franchise terminates the contract, the remainder of the initial franchise fee may be recognized in the year of termination.
Source: Item 23 — RECEIPTS (FDD pages 53–150)
What This Means (2025 FDD)
According to Cr3 American Exteriors's 2025 Franchise Disclosure Document, the company adheres to Financial Accounting Standards Board (FASB) codification Topic 606, Revenue from Contracts with Customers (ASC 606) for revenue recognition. Under ASC 606, Cr3 American Exteriors must determine if the pre-opening activities contain any distinct goods or services, known as performance obligations, and then allocate the initial franchise fees to those performance obligations using the stand-alone selling price of the goods or services. The company has instituted ASC 606 using the full retrospective approach.
For Cr3 American Exteriors, franchise fee revenue is recognized equally over a ten-year period, amortized monthly based on the contract signing date. The company's revenues consist of fees from franchises such as initial franchise fees, royalties, marketing fees, area representative fees, and other fees. The franchise fees are initially deferred revenue and recognized monthly.
Specifically, if the contract is signed before the fifteenth day of the month, half of the monthly accrual amount is recognized. If the contract is signed on or after the fifteenth day of the month, the entire month of the accrual is recognized. The royalty revenue and other fees are recognized when earned and are based on a percentage of gross sales of each individual franchise according to the franchise contract. The company is obligated to provide the franchise with specific performances, including name and trademark use, as outlined in the franchise disclosure document.
The initial franchise fee: is not refundable; is typically collected upon contract signing; and, future allocations of the initial franchise fees have no risk of impairment. When a franchise terminates the contract, the remainder of the initial franchise fee may be recognized in the year of termination. This approach to revenue recognition ensures that Cr3 American Exteriors accurately reflects its financial performance over the life of the franchise agreement.