How does Deer Solution recognize franchise fees as performance obligations?
Deer_Solution Franchise · 2025 FDDAnswer from 2025 FDD Document
57 as a current portion of the deferred expenses as it will be due within the next twelve months, $339,286 as a long-term portion of deferred expenses, and $67,857 recognized as commission expenses for the year ended 31, December 2022.
Deferred revenue consists of the remaining initial franchise fees to be amortized over the life of the franchise agreements. Deferred revenue is a result of the collection of the initial franchise fee at the time of the signing of the franchise agreement and will fluctuate each year based on the number of franchise agreements signed. In 2022, $300,857 of franchise fees collected were deferred over the life of the franchise
Source: Item 23 — RECEIPTS (FDD pages 55–246)
What This Means (2025 FDD)
According to Deer Solution's 2025 Franchise Disclosure Document, the company collects initial franchise fees when a franchise agreement is signed and defers the revenue. This deferred revenue is then amortized over the life of the franchise agreement.
For example, in 2022, Deer Solution collected $300,857 in franchise fees and deferred them over the 7-year term of the franchise agreement. Of this amount, $50,143 was recognized as the current portion of contract liabilities, representing the amount due within the next twelve months. The remaining $250,714 was classified as a long-term portion of contract liabilities.
This accounting practice means that Deer Solution does not recognize the entire franchise fee as revenue immediately upon receipt. Instead, it spreads the recognition over the duration of the franchise agreement, reflecting the ongoing performance obligations and services provided to the franchisee throughout the term. This is a common practice in franchising, as the initial fee often covers not just the right to use the brand but also initial training, support, and other services provided over time.