For Embassy Suites By Hilton, when are franchise deposits reclassified to deferred revenues?
Embassy_Suites_By_Hilton Franchise · 2025 FDDAnswer from 2025 FDD Document
ount by which the carrying value exceeds the estimated fair value. We allocate the impairment loss related to the asset group among the various assets within the asset group pro rata based on the relative carrying values of the respective assets.
Franchise Deposits
Franchise deposits represent application, initiation and other fees that are collected at the time a hotel owner applies for a franchise license. These amounts are recorded as a current liability until the fees become non-refundable, at which time they are reclassified to deferred revenues. In certain cases, if the franchise application is not approved, the fee is recorded as an other current liability in our balance sheet until it is refunded to the applicant, less processing fees, if applicable.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 97)
What This Means (2025 FDD)
According to Embassy Suites By Hilton's 2025 Franchise Disclosure Document, franchise deposits, which include application, initiation, and other fees collected from hotel owners applying for a franchise license, are initially recorded as a current liability. These deposits remain as a current liability until they become non-refundable. Once the fees are deemed non-refundable, Embassy Suites By Hilton reclassifies them as deferred revenues. If a franchise application is not approved, the fee is recorded as an other current liability until it is refunded to the applicant, less any applicable processing fees.
Contract liabilities, on the other hand, specifically relate to non-refundable advance consideration received from hotel owners. This consideration covers application, initiation, and other fees that have been reclassified from the initial franchise deposits. Embassy Suites By Hilton recognizes this revenue over the term of the related contract. In the company's balance sheet, these contract liabilities are presented as deferred revenues.
For a prospective Embassy Suites By Hilton franchisee, this means that the initial franchise deposit is treated as a liability by the franchisor until the conditions for non-refundability are met. Understanding the specific conditions under which the deposit becomes non-refundable is crucial, as it marks the point when the deposit is recognized as deferred revenue by Embassy Suites By Hilton. Franchisees should clarify these conditions to manage their financial expectations and obligations effectively.