Under what conditions does Crepe De Licious account for its contracts with franchisees?
Crepe_De_Licious Franchise · 2025 FDDAnswer from 2025 FDD Document
f providing for income taxes based on amounts reportable for income tax purposes.
Deferred - The recognition of income and expenses in different periods for financial accounting and income tax purposes gives rise to timing difference that result in deferred income taxes.
Reclassifications
Certain reclassifications have been made to the 2023 comparative totals to conform to the 2024 presentation.
Subsequent Events
The Company has evaluated for subsequent events through March 19, 2025, which is the date the financial statements were made available to be issued.
2. Revenue Recognition
Services Provided to Customers
The Company's revenues consist of fees from franchised creperies operated by franchisees and from sales of creperie products to customers. A majority of the revenue includes franchise fees and royalties. 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 Company's customers are located in various locations across the United States and are franchisees, corporate suppliers and restaurants. The Company's major service line is creperie franchise sales and the contracts are typically for a ten-year period.
Services Provided to Customers (Continued)
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. The Restaurant's customer base is typically residents of the Miami, Florida area where the restaurant is located. The Restaurant's major product lines are crepes and beverages. The Company's contracts with its customers are short-term in nature and end upon the delivery of the ordered food.
Performance Obligations
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.
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 recognizes revenue from contracts when specific criteria are met. Crepe De Licious accounts for its contracts when it has obtained approval and commitment from both parties, ensuring mutual agreement. The rights of each party involved must be clearly identified, outlining their respective obligations and entitlements. The payment terms associated with the contract need to be clearly defined, specifying amounts, due dates, and methods of payment. The contract must possess commercial substance, indicating that it has the potential to change the economic situation of Crepe De Licious. Finally, the collectability of consideration must be probable, meaning that Crepe De Licious has a reasonable expectation of receiving payment for the goods or services provided.
For franchise fees, Crepe De Licious 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. 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.
Crepe De Licious also recognizes revenue related to other performance obligations. As an agent for a third-party food distributor, the company receives commissions for procuring food ingredients, which are recognized when the product is delivered. 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. Royalties are typically billed in the first week of each month, with franchisees having thirty days to pay. Additionally, Crepe De Licious receives volume-based rebates from vendors based on franchisee purchases, which are recognized when earned. Franchisees contribute to an advertising fund at a rate of 3 percent of their gross revenues, and revenues for these services are recognized when the related revenue occurs, typically billed in the first week of the month and paid within thirty days.