What accounting standard does Crepe De Licious adopt for recognizing initial franchise fees?
Crepe_De_Licious Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company has adopted the private company accounting alternative which allows private company franchisors to use a practical expedient when identifying performance obligations in its contracts with customers. The Company has elected to use this accounting alternative in Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2021-02, Franchisors – Revenue from Contracts with Customers (Subtopic 952-606): Practical Expedient.
The Company recognizes revenue to depict the transfer of promised services to the Company's customers in an amount reflecting the consideration to which the Company expects to be entitled in exchange for such services. In order to apply this revenue recognition principle, the Company applies the following five step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when, or as, a performance obligation is satisfied.
Source: Item 23 — RECEIPTS (FDD pages 57–233)
What This Means (2025 FDD)
According to Crepe De Licious's 2025 Franchise Disclosure Document, the company has adopted a private company accounting alternative. This allows Crepe De Licious, as a private company franchisor, to use a practical expedient when identifying performance obligations in its contracts with customers. Crepe De Licious has elected to use this accounting alternative in Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2021-02, Franchisors – Revenue from Contracts with Customers (Subtopic 952-606): Practical Expedient.
Crepe De Licious recognizes revenue when it transfers promised services to its customers, reflecting the consideration the company expects to receive for those services. To apply this revenue recognition principle, Crepe De Licious follows a five-step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when, or as, a performance obligation is satisfied.
This approach is significant for prospective franchisees because it dictates how and when Crepe De Licious recognizes revenue from franchise fees and other services. Understanding this accounting method can help franchisees better interpret the franchisor's financial statements and assess the financial health and stability of Crepe De Licious. The adoption of ASU 2021-02 provides Crepe De Licious with a simplified method for revenue recognition, potentially reducing the complexity and cost of financial reporting.
It is important for potential franchisees to consult with their own financial advisors to fully understand the implications of this accounting method and how it may affect their investment decision. Additionally, franchisees should review the complete financial statements and related notes in the FDD to gain a comprehensive understanding of Crepe De Licious's financial performance and accounting practices.