How does Fly To Fit estimate the stand-alone selling price of pre-opening activities?
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 estimates the stand-alone selling price of pre-opening activities using an adjusted market assessment approach. Fly To Fit first allocates the initial franchise fees and any fixed consideration under the franchise agreement to the stand-alone selling price of training services that are not brand specific. Any residual amount is then allocated to the right to access Fly To Fit's intellectual property.
Consideration allocated to pre-opening activities that are not brand specific is recognized ratably as those services are rendered. Fly To Fit follows Accounting Standards Update (ASU) to ASC 606, Franchisors—'Revenue from Contracts with Customers (Subtopic 952-606): Practical Expedient', and recognizes consideration allocated to pre-opening activities when the related services have been rendered.
The remaining franchisee fee not allocated to pre-opening activities is recorded as Unearned Revenue and will be recognized over the term of the franchise agreement. This means Fly To Fit defers recognizing this portion of the revenue until it fulfills its obligations over the life of the franchise agreement, typically several years. This accounting treatment is standard practice to match revenue recognition with the provision of ongoing services and access to intellectual property.