According to Dermani Medspa, what gives rise to unearned revenue?
Dermani_Medspa Franchise · 2025 FDDAnswer from 2025 FDD Document
all renew automatically for successive one (1) year periods unless terminated in accordance with the Trademark Agreement.
Legal Claims
Occasionally, in the ordinary course of business, the Company may be party to legal claims or proceedings of which the outcomes are subject to significant uncertainty. In accordance with ASC 450, Contingencies, the Company assesses the likelihood of an adverse judgment for any outstanding claim, as well as, ranges of probable losses. When it has been determined that a loss is probable and the amount can be reasonably estimated, the Company will record
Source: Item 23 — RECEIPTS (FDD pages 66–311)
What This Means (2025 FDD)
According to Dermani Medspa's 2025 Franchise Disclosure Document, $1,350,595 of initial franchise fees received have not been earned as of December 31, 2024. This unearned revenue arises because Dermani Medspa recognizes revenue from franchise fees over time as they fulfill their performance obligations to franchisees.
Dermani Medspa identifies three performance obligations related to the franchise fee: initial training, store location assistance, and the right to intellectual property. The revenue related to initial training is recognized when the training is completed, and the revenue for store location assistance is recognized when the franchise agreement is signed. However, the revenue associated with the right to use Dermani Medspa's intellectual property is recognized ratably over the ten-year term of the franchise agreement.
This means that a portion of the initial franchise fee is recognized as revenue each year for ten years. Until Dermani Medspa fully performs all of its obligations, the remaining portion of the franchise fees is considered unearned revenue and is recorded as a liability on the company's balance sheet. This accounting practice is common in franchising, as it aligns revenue recognition with the delivery of services and rights over the life of the franchise agreement.