What is the 'adjusted market assessment approach' that Fly To Fit uses?
Fly_To_Fit Franchise · 2024 FDDAnswer from 2024 FDD Document
The Company estimates the stand-alone selling price of pre-opening activities using an adjusted market assessment approach. The Company will first allocate the initial franchise fees and the fixed consideration, under the franchise agreement to the standalone selling price of the training services that are not brand specific and the residual, if any, to the right to access the Company's intellectual property. Consideration allocated to pre-opening activities, which are not brand specific are recognized ratably as those services are rendered. Consideration allocated to pre-opening activities included under Accounting Standards Update (ASU) to ASC 606, Franchisors—'Revenue from Contracts with Customers (Subtopic 952-606): Practical Expedient' is recognized when the related services have been rendered.
The remaining franchisee fee not allocated to pre-opening activities are recorded as Unearned Revenue and will be recognized over the term of the franchise agreement.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 44)
What This Means (2024 FDD)
According to Fly To Fit's 2024 Franchise Disclosure Document, the company uses an adjusted market assessment approach to estimate the stand-alone selling price of pre-opening activities. This involves allocating the initial franchise fees and any fixed consideration under the franchise agreement. The allocation is split between the stand-alone selling price of training services that are not brand-specific and the residual amount, if any, to the right to access Fly To Fit's intellectual property.
The consideration allocated to pre-opening activities that are not brand-specific is recognized ratably as those services are rendered. For pre-opening activities included under the Accounting Standards Update (ASU) to ASC 606, Franchisors—'Revenue from Contracts with Customers (Subtopic 952-606): Practical Expedient', revenue is recognized when the related services have been rendered. This means Fly To Fit recognizes revenue for these services as they provide them to the franchisee.
The remaining franchisee fee that is not allocated to pre-opening activities is recorded as Unearned Revenue. This Unearned Revenue will then be recognized over the term of the franchise agreement. This accounting method ensures that Fly To Fit recognizes revenue in alignment with the services and rights it provides to its franchisees over the duration of their franchise agreement.