When are franchise fees recognized as revenue for Golden Krust Caribbean Restaurant?

According to Golden Krust Caribbean Restaurant's 2024 Franchise Disclosure Document, initial franchise fees are allocated to each individual restaurant and recognized over the term of the respective franchise agreement, starting from the date the restaurant opens. The franchise agreements typically require franchisees to pay an initial, nonrefundable franchise license fee before the restaurant opens, as well as continuing fees, or royalty income, on a weekly basis based on a percentage of the franchisee's gross sales. The initial term of the franchise agreements is typically ten years.

For a prospective Golden Krust Caribbean Restaurant franchisee, this means that the initial franchise fee paid is not immediately recognized as revenue by the franchisor. Instead, it is recognized gradually over the term of the franchise agreement, which is typically ten years, beginning when the restaurant opens. This accounting practice aligns the revenue recognition with the period during which the franchisee is operating and benefiting from the franchise.

Additionally, fees received or receivable that are expected to be recognized as revenue within one year are classified as current deferred revenue on the balance sheets. This indicates that Golden Krust Caribbean Restaurant defers the recognition of initial franchise fees and recognizes them as revenue over time, reflecting the ongoing support and brand usage provided to the franchisee throughout the term of the agreement. This approach is common in the franchise industry, as it matches the revenue with the services and rights provided over the life of the franchise agreement.