When are the related services considered rendered by Crown Gold Exchange?
Crown_Gold_Exchange Franchise · 2024 FDDAnswer from 2024 FDD Document
h maturities of three months or less when purchased.
Revenue Recognition
Revenues are primarily derived from franchise fees (one-time and recurring monthly fees). In accordance with Accounting Standards Codification (ASC) Topic 606, Revenue will be recognized when persuasive evidence of an arrangement exists, delivery has occurred, or services have been rendered, the seller's price to the buyer is fixed or determinable, and collectability is reasonable assured. The determination of whether fees and fixed or determinable and collection is reasonable assured involves the use of assumptions. Arrangement terms and customer information are evaluated to ensure that these criteria are met prior to recognition of revenue.
Specifically for franchisors, The Financial Accounting Standards Board (FASB) has issued an Accounting Standards Update (ASU) to ASC 606, Franchisors—'Revenue from Contracts with Customers (Subtopic 952-606): Practical Expedient' in 2022 which provides a new practical expedient that permits private company franchisors to account for preopening services provided to a franchisee as distinct from the franchise license if the services are consistent with those included in a predefined list within the guidance. The Company has elected to adopt this new standard.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 38)
What This Means (2024 FDD)
According to Crown Gold Exchange's 2024 Franchise Disclosure Document, the company recognizes revenue based on Accounting Standards Codification (ASC) Topic 606. This means Crown Gold Exchange recognizes revenue when there is persuasive evidence of an arrangement, delivery has occurred, or services have been rendered. Also, the seller's price to the buyer must be fixed or determinable, and collectability must be reasonably assured. The determination of whether fees are fixed or determinable and collection is reasonably assured involves the use of assumptions. Arrangement terms and customer information are evaluated to ensure that these criteria are met prior to recognition of revenue.
Specifically, consideration allocated to pre-opening activities that 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. This means that Crown Gold Exchange spreads out the recognition of these revenues over the life of the agreement, rather than recognizing it all upfront. This is a common practice in franchising, as the franchisee is paying for the ongoing use of the brand's intellectual property and support services.