What is the practical expedient that Fly To Fit uses for revenue recognition?

According to Fly To Fit's 2024 Franchise Disclosure Document, the company has elected to adopt a new accounting standard that provides a practical expedient for recognizing revenue from contracts with customers. This standard, issued as an Accounting Standards Update (ASU) to ASC 606, Franchisors—'Revenue from Contracts with Customers (Subtopic 952-606): Practical Expedient' in 2022, allows private company franchisors to account for pre-opening services provided to a franchisee as distinct from the franchise license under certain conditions.

Specifically, Fly To Fit can treat pre-opening services as separate from the franchise license if these services are consistent with a predefined list within the accounting guidance. This means that if the pre-opening activities are not brand-specific and provide franchisees with general business information separate from the Fly To Fit branded franchise, they can be accounted for as a distinct performance obligation.

The portion of initial franchise fees allocated to these non-brand-specific pre-opening activities is recognized as revenue when the services are rendered. The remaining portion of the franchisee fee, not allocated to these pre-opening activities, is recorded as Unearned Revenue and is recognized over the term of the franchise agreement. This approach allows Fly To Fit to recognize revenue for specific services as they are provided, while deferring the recognition of revenue related to the ongoing franchise rights over the life of the agreement.