Why are some pre-opening activities considered distinct by Desi District?
Desi_District Franchise · 2024 FDDAnswer from 2024 FDD Document
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, certain pre-opening activities are considered distinct because they are not brand-specific and provide franchisees with general business information separate from the operation of a Desi District franchise. These activities benefit the franchisee independently of the brand's intellectual property.
Specifically, Desi District considers pre-opening activities distinct if they provide relevant general business information that is separate from the operation of a Desi District-branded franchise. These activities are not highly interrelated or interdependent with access to the company's intellectual property. Therefore, they are accounted for as a separate, distinct performance obligation.
This distinction is important for revenue recognition. Desi District recognizes revenue for these non-brand-specific pre-opening activities as the services are rendered. All other pre-opening activities that are highly interrelated and interdependent with access to Desi District's intellectual property are treated as a single performance obligation, with revenue recognized over the term of the franchise agreement as the franchisee gains access to the intellectual property. This accounting treatment is in accordance with accounting standards updates issued by the Financial Accounting Standards Board (FASB).