How does Golden Krust Caribbean Restaurant account for advertising costs?
Golden_Krust_Caribbean_Restaurant Franchise · 2024 FDDAnswer from 2024 FDD Document
The Company expenses advertising as incurred. For the years ended December 31, 2023 and 2022, advertising expenses were $1,683,872 and $1,263,044, respectively, and are included in selling, general, and administrative expenses on the statements of operations.
The Company, under its franchise agreements, typically requires the franchisee to pay continuing advertising fees on a weekly basis based on a percentage of franchisee gross sales, which represents a portion of the consideration received in return for continuing advertising support. Continuing advertising fees are recognized over the term of the respective franchise agreement based on the fees earned each period as the underlying sales occur. Any advertising revenue that is not paid within 30 days is reserved against.
The Company maintains an advertising fund, which is accounted for separately, as described in the Company's Franchise Disclosure Document (FDD). The Company's franchisee's make monthly contributions to the advertising fund based on a percentage of their respective sales. These funds are segregated to pay for franchise related advertising and cannot be used to defray general operating expenses of the Company, except as otherwise described in the FDD. Any unspent advertising revenues are included in accrued expenses on the balance sheets. As of December 31, 2023 and 2022, there were no accrued advertising expenses, as the Company spent more in advertising than it recognized as advertising revenue from its franchisees.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 35)
What This Means (2024 FDD)
According to Golden Krust Caribbean Restaurant's 2024 Franchise Disclosure Document, the company expenses advertising costs as they are incurred. In 2023, these expenses totaled $1,683,872, and in 2022, they were $1,263,044. These costs are included within the selling, general, and administrative expenses listed on the company's statements of operations.
Golden Krust Caribbean Restaurant also details how it handles advertising fees collected from franchisees. Franchisees typically pay continuing advertising fees weekly, calculated as a percentage of their gross sales. These fees are part of what franchisees pay for ongoing advertising support from Golden Krust Caribbean Restaurant. The company recognizes these advertising fees as revenue over the term of the franchise agreement, aligning the revenue recognition with the period when the underlying sales occur. Any advertising revenue that remains unpaid after 30 days is reserved against.
Furthermore, Golden Krust Caribbean Restaurant maintains a separate advertising fund. Franchisees contribute to this fund monthly, based on a percentage of their sales. The funds are specifically used for franchise-related advertising and cannot be used for the company's general operating expenses, unless otherwise specified in the FDD. Any unspent advertising revenues are recorded as accrued expenses on the balance sheets. However, for both 2023 and 2022, there were no accrued advertising expenses, because Golden Krust Caribbean Restaurant spent more on advertising than it received in advertising revenue from its franchisees.