How does Desi District account for pre-opening activities that are highly interrelated to the access of intellectual property?
Desi_District Franchise · 2024 FDDAnswer from 2024 FDD Document
The Company's primarily performance obligation under the franchise agreement mainly includes granting certain rights to access the Company's intellectual property and a variety of activities relating to opening a franchise unit, including initial training and other such activities commonly referred to collectively as "pre-opening activities", which are recognized as a single performance obligation. The Company expects that certain pre-opening activities provided to the franchisee will not be brand specific and will provide the franchisee with relevant general business information that is separate and distinct from the operation of a company-branded franchise unit. The portion of pre-opening activities that will be provided that is not brand specific is expected to be distinct as it will provide a benefit to the franchisee and is expected not to be highly interrelated or interdependent to the access of the Company's intellectual property, and therefore will be accounted for as a separate distinct performance obligation. All other pre-opening activities are expected to be highly interrelated and interdependent to the access of the Company's intellectual property and therefore will be accounted for as a single performance obligation, which is satisfied by granting certain rights to access the Company's intellectual property over the term of each franchise agreement.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 52)
What This Means (2024 FDD)
According to Desi District's 2024 Franchise Disclosure Document, the company distinguishes between pre-opening activities that are brand-specific and those that are not. The franchise agreement primarily involves granting rights to access Desi District's intellectual property, along with pre-opening activities like initial training. These are considered a single performance obligation.
Desi District recognizes that some pre-opening activities offer general business information that isn't specific to the Desi District brand. These activities are treated as separate and distinct performance obligations because they benefit the franchisee independently and aren't highly interrelated with accessing Desi District's intellectual property.
However, all other pre-opening activities that are highly interrelated and interdependent with the access of Desi District's intellectual property are accounted for as a single performance obligation. This obligation is satisfied when the franchisee is granted rights to access the company's intellectual property over the term of the franchise agreement.