Regarding contracts with customers, what steps are involved in revenue recognition for Gokhale Method?
Gokhale_Method Franchise · 2024 FDDAnswer from 2024 FDD Document
financial statements.
Pursuant to Accounting Standards Codification ("ASC") 606, revenues are recognized upon applying the following steps:
- Identification of the contract(s) with a customer;
- Identification of the performance obligations in the contract;
- Determination of the transaction price;
- Allocation of the transaction price to performance obligations in the contract;
- Recognition of revenues when, or as, the contractual obligations are satisfied.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition (Continued)
Nature of products and services: The Company derives its revenues primarily from royalties, franchise fees, and continuing education classes for franchisees.
Royalty revenue pertains to a pre-determined amount or percentage for each course taught based on the type of course taught and the number of participants. For royalties, revenue is recognized when students participate in the class. For many of these classes, the payment is processed or collected by GME or the teacher. If the payment is collected by GME, the royalties due to GMI on these classes are periodically remitted to GMI by GME. If the payment is collected by the teacher, GMI will record revenue for the net royalty due.
The Company's franchise agreements generally provide for an initial non-refundable franchise fee of $4,000 per franchise for a five-year term. The Company classifies this as deferred revenue in the balance sheet and recognizes revenue 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. The Company classifies these fees as deferred revenue in the balance sheet and recognizes revenue on a monthly basis over the applicable term, which is generally one year. Amounts recognized as revenue during the year are included in the continuing education caption on th
Source: Item 22 — CONTRACTS (FDD page 34)
What This Means (2024 FDD)
According to Gokhale Method's 2024 Franchise Disclosure Document, revenue recognition follows specific accounting standards. The company adheres to Accounting Standards Codification (ASC) 606, which outlines a five-step process for recognizing revenue. These steps include identifying the contract with a customer, identifying the performance obligations within that contract, determining the transaction price, allocating the transaction price to the performance obligations, and finally, recognizing revenue when the contractual obligations are satisfied. This standardized approach ensures that Gokhale Method's revenue recognition is consistent and compliant with accounting regulations.
For Gokhale Method, revenue is primarily derived from royalties and franchise fees. Royalty revenue is based on a predetermined amount or percentage for each course taught, considering the course type and the number of participants. Revenue from royalties is recognized when students participate in the class. Payments for these classes can be processed or collected either by GME (Gokhale Method Enterprise) or by the teacher. When GME collects the payment, the royalties due to GMI (Gokhale Method Institute) are periodically remitted to GMI. If the teacher collects the payment, GMI records revenue for the net royalty due.
In addition to royalties, Gokhale Method also generates revenue from franchise fees. The initial franchise fee is $4,000 for a five-year term and is non-refundable. This fee is classified as deferred revenue on the balance sheet and is recognized over the entire five-year franchise term. Franchisees are also required to pay continuing education fees, such as annual meeting fees, online university membership fees, and teacher teleseminar fees. Similar to the initial franchise fee, these continuing education fees are classified as deferred revenue and recognized on a monthly basis over the applicable term, typically one year. The amounts recognized as revenue during the year are then included in the continuing education caption on the Statement of Income. This systematic approach to revenue recognition ensures accurate financial reporting for Gokhale Method.