For Fly Fitness, on what basis is the amount of revenue recognized determined?
Fly_Fitness Franchise · 2024 FDDAnswer from 2024 FDD Document
MENTS
December 31, 2023
SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES - Continued
F. Franchise Operations and Revenue Recognition
Revenue is recognized on the transfer or goods or services to customers in an amount that reflects the consideration to which the entity expects to realize in exchange for those goods or services.
Franchise Fees
The Company follows Accounting Standards Update (ASU) 2021-02, whereby they have elected to account for preopening services as a single performance obligation. Once the Company performs its service requirements it records revenues and this is normally concurrent with a franchise opening.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 44)
What This Means (2024 FDD)
According to Fly Fitness's 2024 Franchise Disclosure Document, the company recognizes revenue when goods or services are transferred to customers. The amount of revenue recognized reflects the consideration Fly Fitness expects to receive in exchange for those goods or services. This is a standard accounting practice, ensuring that revenue is recorded when it is earned and realized or realizable.
For franchise fees, Fly Fitness follows Accounting Standards Update (ASU) 2021-02 and accounts for pre-opening services as a single performance obligation. This means that Fly Fitness recognizes revenue once they have fulfilled their service requirements, which typically happens when a franchise opens. Any franchise fees received before the opening are recorded as deferred revenue, which is a liability on the balance sheet, until the services are performed.
Regarding royalty fees, the FDD states that these are collected on an ongoing basis and calculated by a method that is not fully disclosed in the provided excerpt. Prospective franchisees should inquire with Fly Fitness about the specific calculation method for royalty fees to fully understand this aspect of revenue recognition and its impact on their financial obligations.