How does Crown Gold Exchange recognize revenue from pre-opening activities?
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 recognizes revenue from pre-opening activities based on Accounting Standards Codification (ASC) Topic 606. The company estimates the stand-alone selling price of pre-opening activities using an adjusted market assessment approach. The initial franchise fees and fixed consideration are allocated to the training services that are not brand specific, with any residual amount allocated to the right to access Crown Gold Exchange's intellectual property.
Consideration allocated to pre-opening activities that are not brand specific is recognized 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 is recognized when the related services have been rendered. This means that Crown Gold Exchange recognizes revenue as it provides these services to the franchisee.
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 indicates that Crown Gold Exchange defers the recognition of the remaining revenue over the life of the franchise agreement, aligning revenue recognition with the ongoing benefit provided to the franchisee. This approach ensures that revenue is recognized in accordance with accounting standards and reflects the delivery of services and access to intellectual property over time.