How does Gokhale Method recognize initial franchise fees received from franchisees?
Gokhale_Method Franchise · 2024 FDDAnswer from 2024 FDD Document
invoice for the net royalty.
Our franchise agreements generally provide for an initial non-refundable franchise fee $4,000 per franchise for five-years term. We classify this as deferred revenue in our balance sheet and recognized over the franchise term.
The agreement also requires franchisees to pay continuing education fees including annual meeting fees, online university membership fees and teacher teleseminar fees. These fees are included in continuing education caption of the Statement of Operations.
Deferred Revenue
Deferred revenue is primarily from initial franchise fees and renewal fees received from franchises for new franchise opening or new franchise terms, which are recog
Source: Item 22 — CONTRACTS (FDD page 34)
What This Means (2024 FDD)
According to Gokhale Method's 2024 Franchise Disclosure Document, the company classifies the initial franchise fee as deferred revenue and recognizes it over the franchise term. The initial non-refundable franchise fee is $4,000 for a five-year term. This means that Gokhale Method does not recognize the entire $4,000 as revenue immediately upon receipt. Instead, it spreads the recognition of this revenue over the 5-year franchise term.
For a prospective franchisee, this accounting practice has no direct financial impact on their business operations. However, it is important for understanding Gokhale Method's financial statements. The deferred revenue is recorded as a liability on Gokhale Method's balance sheet and is recognized as revenue on the income statement proportionally over the term of the franchise agreement.
This method of revenue recognition is common in the franchise industry, as it aligns the revenue with the services and rights provided to the franchisee over the life of the agreement. Additionally, Gokhale Method requires franchisees to pay continuing education fees, including annual meeting fees, online university membership fees, and teacher teleseminar fees. These fees are included in the continuing education caption of the Statement of Operations.