Under what conditions does Crepe De Licious account for its contracts with customers?
Crepe_De_Licious Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company accounts for its contracts when it has obtained the approval and commitment from both parties, the rights of the parties are identified, the payment terms are identified, the contract has commercial substance and collectability of consideration is probable.
The Restaurant primarily earns its revenue through sales of crepes and beverages to consumers. The Restaurant accounts for its contracts when it has obtained the approval and commitment from both parties, the rights of the parties are identified, the payment terms are identified, the contract has commercial substance and the collectability of consideration is probable.
- 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 the 2025 Crepe De Licious Franchise Disclosure Document, both Crepe De Licious and its Restaurant (Dolphin Mall) account for contracts when specific conditions are met. These conditions include obtaining approval and commitment from both parties involved in the contract. Additionally, the rights of each party must be clearly identified within the contract. The payment terms associated with the contract must also be well-defined. The contract needs to have commercial substance, indicating that it has the potential to affect the company's future cash flows. Finally, the collectability of consideration, meaning the payment that Crepe De Licious expects to receive, must be probable.
For Crepe De Licious, the majority of revenue comes from franchise fees and royalties. The company's customers include franchisees, corporate suppliers, and restaurants located across the United States. The contracts with franchisees typically span a ten-year period, reflecting the long-term nature of the franchise relationship. The Restaurant, on the other hand, primarily generates revenue through the sale of crepes and beverages to consumers. Its customer base mainly consists of residents in the Miami, Florida area, where the Restaurant is located.
The Restaurant's contracts are short-term, ending upon the delivery of the ordered food. This distinction highlights the difference in revenue recognition between franchise agreements and direct sales to consumers. Crepe De Licious also identifies specific performance obligations for which revenue is recognized when services or products are provided. These include franchise fees, where revenue is recognized in the year the store opens, and commissions for the sale of food products, recognized when the product is delivered to the customer. For sales-based and usage-based royalties, revenue is recognized at the later of when the subsequent sales occur or when the performance obligation is satisfied, with royalties billed monthly and due within thirty days.