What approach did Gokhale Method use when adopting the new revenue recognition standard?
Gokhale_Method Franchise · 2024 FDDAnswer from 2024 FDD Document
ccounting Pronouncement Adopted
The Company adopted ASU 2014-09, Revenue from Contracts with Customers, and the subsequent amendments to the initial guidance, effective January 1, 2020. Under the new standard, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.
New Accounting Pronouncement Not Yet Effective
In February 2016, FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize lease liabilities and corresponding right-of-use assets for those leases classified as operating leases under previous U.S. GAAP to increase transparency and comparability. Under the new standard, enhanced disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from the leases. The new standard requires the use of a modified retrospective approach including a number of optional practical expedients and will be effective for fiscal years beginning after December 15, 2021. The Company is evaluating the impact of adopting this guidance to the financial statements.
Source: Item 22 — CONTRACTS (FDD page 34)
What This Means (2024 FDD)
According to the 2024 FDD, Gokhale Method adopted ASU 2014-09, Revenue from Contracts with Customers, effective January 1, 2020. This standard replaced most existing revenue recognition guidance in U.S. GAAP. Gokhale Method used the modified retrospective approach when adopting this new standard.
Under the new standard, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. The standard also requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.
The adoption of this standard did not have a material impact on Gokhale Method's financial statements. Revenues are recognized based on a five-step process that includes identifying the contract, identifying performance obligations, determining the transaction price, allocating the transaction price to performance obligations, and recognizing revenues when contractual obligations are satisfied. Gokhale Method primarily derives its revenues from royalties and franchise fees.