What activities are included in Desi District's 'pre-opening activities'?
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, pre-opening activities include granting certain rights to access the company's intellectual property and a variety of activities relating to opening a franchise unit, including initial training. These activities are collectively referred to as "pre-opening activities" and are recognized as a single performance obligation.
Desi District distinguishes between pre-opening activities that are brand-specific and those that are not. The activities that are not brand specific provide the franchisee with relevant general business information separate and distinct from the operation of a Desi District branded franchise unit. These non-brand-specific activities are accounted for as a separate distinct performance obligation because they benefit the franchisee and are not highly interrelated or interdependent to the access of the company's intellectual property.
All other pre-opening activities are considered highly interrelated and interdependent to the access of Desi District's intellectual property. Therefore, they are 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. This accounting treatment affects how Desi District recognizes revenue related to the initial franchise fee, allocating portions to pre-opening activities as services are rendered and the remainder over the term of the franchise agreement.