When does Crab N Spice recognize consideration allocated to pre-opening activities that are not brand specific?

According to Crab N Spice's 2024 Franchise Disclosure Document, the company recognizes consideration allocated to pre-opening activities that are not brand specific ratably as those services are rendered. These activities are distinct from the operation of a Crab N Spice-branded franchise unit and provide the franchisee with relevant general business information.

The FDD specifies that Crab N Spice uses an adjusted market assessment approach to estimate the stand-alone selling price of these pre-opening activities. The company first allocates the initial franchise fees and fixed consideration under the franchise agreement to the stand-alone selling price of the training services that are not brand specific. Any residual amount is then allocated to the right to access Crab N Spice's intellectual property.

This accounting treatment is in accordance with Accounting Standards Update (ASU) to ASC 606, Franchisors—'Revenue from Contracts with Customers (Subtopic 952-606): Practical Expedient'. This standard allows Crab N Spice to account for pre-opening services separately from the franchise license if the services meet certain criteria. 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.