Does Gold Star capitalize contract acquisition costs related to franchising activities?
Gold_Star Franchise · 2025 FDDAnswer from 2025 FDD Document
- Revenue from the sales of proprietary chili is recognized in the period in which distributors ship the franchisee's order; recognition of revenue (point in time) results in accounts receivable on the balance sheet.
- Revenue from the sales of retail chili products is recognized in the period in which distributors ship the order; recognition of revenue (point in time) results in accounts receivable on the consolidated balance sheets.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In determining the amount and timing of revenue from contracts with customers, the Company exercises significant judgment with respect to collectability of the amount. However, the timing of recognition does not require significant judgments as it is based on either the franchise term or the mo
Source: Item 23 — Receipts (FDD pages 53–163)
What This Means (2025 FDD)
According to Gold Star's 2025 Franchise Disclosure Document, they generally do not capitalize contract acquisition costs related to franchising activities. Gold Star states that they do not incur a significant amount of these costs and therefore have not capitalized any. They also believe their franchising arrangements do not contain a significant financing component. This means that Gold Star expenses these costs as they are incurred rather than treating them as an asset on their balance sheet.
However, there is an exception to this general rule. As an incentive for franchisees to rebrand to the Gold Star Chili brand, Gold Star implemented a Development Incentive Program. Under this program, depending on the package and royalty incentive level selected by the franchisee, Gold Star will either provide a reduction in royalty fees of 1% to 3% depending on the rebranding package or a cash contribution of 10% up to $25,000 of remodeling costs.
If a franchisee elects the cash contribution option, Gold Star records a contract asset that is then amortized over a period of 12 to 18 months. This amortization is then netted against the franchisee's royalty fees. This specific scenario is an exception where Gold Star does capitalize a cost (the cash contribution) and amortizes it over time, treating it as a contract asset. This accounting treatment is specific to the Development Incentive Program and the cash contribution option.