How does Crown Gold Exchange account for pre-opening activities that are not brand specific?
Crown_Gold_Exchange Franchise · 2024 FDDAnswer from 2024 FDD Document
The Company estimates the stand-alone selling price of pre-opening activities using an adjusted market assessment approach. The Company will first allocate the initial franchise fees and the fixed consideration, under the franchise agreement to the standalone selling price of the training services that are not brand specific and the residual, if any, to the right to access the Company's intellectual property. Consideration allocated to pre-opening activities, which are not brand specific are recognized ratably as those services are rendered. Consideration allocated to pre-opening activities included under Accounting Standards Update (ASU) to ASC 606, Franchisors—'Revenue from Contracts with Customers (Subtopic 952-606): Practical Expedient' is recognized when the related services have been rendered.
The remaining franchisee fee not allocated to pre-opening activities are recorded as Unearned Revenue and will be recognized over the term of the franchise agreement.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 38)
What This Means (2024 FDD)
According to the 2024 Franchise Disclosure Document, Crown Gold Exchange uses an adjusted market assessment approach to estimate the stand-alone selling price of pre-opening activities. Crown Gold Exchange first allocates the initial franchise fees and any fixed consideration under the franchise agreement to the stand-alone selling price of training services that are not brand specific. Then, any residual amount is allocated to the right to access Crown Gold Exchange's intellectual property.
Crown Gold Exchange recognizes consideration allocated to pre-opening activities that are not brand specific ratably as those services are rendered. For pre-opening activities included under the Accounting Standards Update (ASU) to ASC 606, Franchisors—'Revenue from Contracts with Customers (Subtopic 952-606): Practical Expedient', revenue recognition occurs when the related services have been provided.
The remaining franchisee fee not allocated to pre-opening activities is recorded as Unearned Revenue and will be recognized over the term of the franchise agreement. This means that Crown Gold Exchange defers recognizing this portion of the revenue until it fulfills its obligations under the franchise agreement over time.