What constitutes a performance obligation for Crepe De Licious?
Crepe_De_Licious Franchise · 2025 FDDAnswer from 2025 FDD Document
When determining whether the customer has obtained control of the goods or services, the Company considers all future performance obligations. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract's transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. All of the Company's contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and, therefore, not distinct. Revenue on the Company's contracts is recognized when obligations under the terms of the contract are satisfied.
The following performance obligations have been identified for which revenue is recognized at the point services or products are provided to satisfy the respective performance obligations:
- Franchise Fees For performance obligations related to franchise fees from franchisees, the Company has elected to adopt Financial Accounting Standards Board Accounting Standards Update 2021-02 which allows them to recognize the initial franchise fees in the year the store opens. The sales are made to franchisees. The Company receives a contractually obligated fee from the franchisee based on the restaurant. Payment for the initial franchise fees are due at the time the agreement is signed. Revenue from franchise fees are recognized at a point in time.
- Commissions for Sale of Food Products As an agent for a third-party food distributor, the Company's performance obligation is to procure food ingredients for the third-party. As consideration for this service, the Company receives a commission from the third-party upon delivery of the product. This commission is recognized at a point in time when the product is delivered to the customer.
- Sales & Usage Based Royalties Franchise rights are considered symbolic intellectual property. For sales-based and usage-based services, a franchisor recognizes revenue at the later of: (1) when the subsequent sales occurs; or (2) on the satisfaction or partial satisfaction of the performance obligation to which the royalty relates. Sales-based and usage-based royalties are recognized as earned. Royalties are billed for in the first week of each month and the franchisees have thirty days to pay.
Source: Item 23 — RECEIPTS (FDD pages 57–233)
What This Means (2025 FDD)
According to Crepe De Licious's 2025 Franchise Disclosure Document, a performance obligation is defined as a promise in a contract to transfer a distinct good or service to the customer. Crepe De Licious allocates a contract's transaction price to each distinct performance obligation and recognizes it as revenue when the obligation is satisfied. The FDD states that all of Crepe De Licious's contracts have a single performance obligation because the promise to transfer individual goods or services is not separately identifiable from other promises and, therefore, not distinct. Revenue is recognized when obligations under the terms of the contract are satisfied.
Specifically, Crepe De Licious identifies several performance obligations. For franchise fees from franchisees, Crepe De Licious recognizes the initial franchise fees in the year the store opens, following Financial Accounting Standards Board Accounting Standards Update 2021-02. The company receives a contractually obligated fee from the franchisee based on the restaurant, with payment due upon signing the agreement, and revenue is recognized at a point in time.
Additionally, as an agent for a third-party food distributor, Crepe De Licious's performance obligation involves procuring food ingredients for the third party. In return, Crepe De Licious receives a commission upon delivery of the product, which is recognized at a point in time. For sales-based and usage-based royalties related to franchise rights (considered symbolic intellectual property), Crepe De Licious recognizes revenue at the later of when the subsequent sales occur or on the satisfaction of the performance obligation. These royalties are billed in the first week of each month, with franchisees having thirty days to pay.