What is the condition for recognizing the remaining unearned revenue and deferred costs into income for Crave Cookies?

According to Crave Cookies' 2025 Franchise Disclosure Document, the company recognizes the remaining unearned revenue and deferred costs into income at the time a franchise location closes before the estimated 10-year life of the franchise agreement. This means that if a franchisee ceases operations before the full term of their agreement, Crave Cookies will account for any previously deferred revenue and associated costs at that time.

For a prospective Crave Cookies franchisee, this policy has implications for the financial accounting of their franchise fees. Initially, only a portion of the franchise fee (generally 80%) is recognized as revenue upon the franchise opening and completion of training. The remaining portion is recognized over the expected 10-year life of the agreement. However, if the franchise closes early, this can accelerate the recognition of the remaining unearned revenue and deferred costs, potentially impacting the company's financial statements for that period.

This accounting practice is important for franchisees to understand, as it affects how Crave Cookies manages its revenue and liabilities. Franchisees should be aware that the 10-year term is a key factor in revenue recognition and that early closure can trigger immediate recognition of deferred amounts. This could also influence decisions related to the sale or transfer of a franchise, as the remaining term of the agreement would affect the accounting treatment of franchise fees.