What are the steps Deer Solution takes to determine revenue recognition?
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 the 2025 Deer Solution FDD, the company adheres to generally accepted accounting principles (GAAP) for its financial statements. A key aspect of Deer Solution's revenue recognition involves the initial franchise fees collected from franchisees. These fees are not immediately recognized as revenue but are instead deferred and amortized over the life of the franchise agreement. This means that the revenue is recognized gradually over the term of the agreement, rather than all at once when the fee is collected.
In 2022, Deer Solution deferred $300,857 of franchise fees, which were then amortized over the 7-year term of the franchise agreement. Of this amount, $50,143 was recognized as a current portion of contract liabilities, representing the amount due within the next twelve months, while $250,714 was classified as a long-term portion of contract liabilities. This deferral and amortization process ensures that revenue is recognized in alignment with the period during which the franchise provides services and support to the franchisee.
For a prospective Deer Solution franchisee, this accounting practice means that the initial franchise fee you pay will be recognized as revenue by Deer Solution over the 7-year term of your agreement. This approach is common in franchising, as it reflects the ongoing obligations and support that the franchisor provides to the franchisee throughout the duration of the franchise relationship. Understanding this revenue recognition policy can help franchisees better interpret Deer Solution's financial statements and assess the company's financial performance.