How does Golden Krust Caribbean Restaurant recognize franchise fees?
Golden_Krust_Caribbean_Restaurant Franchise · 2024 FDDAnswer from 2024 FDD Document
a renewal fee upon execution of the renewal term. Generally, the franchise license granted for each individual restaurant within an arrangement represents a single performance obligation.
Initial franchise fees for each arrangement are allocated to each individual restaurant and recognized over the term of the respective franchise agreement from the date of the restaurant opening. Royalty income is also recognized over the term of the respective franchise agreement based on the royalties earned each period as the underlying sales occur. 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. Any royalty revenue that is not paid within 30 days is reserved against.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition (Continued)
Advertising Fees
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.
Company Owned Restaurants
Restaurant sales are recognized at a point in time when the customer exchange cash or cash consideration for food and beverage products.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 35)
What This Means (2024 FDD)
According to the 2024 Golden Krust Caribbean Restaurant Franchise Disclosure Document, the company recognizes initial franchise fees over the term of the franchise agreement, starting from the date the restaurant opens. These initial fees are nonrefundable and are typically required to be paid before the restaurant opens. The standard term for a Golden Krust Caribbean Restaurant franchise agreement is ten years. Franchisees may have the option to renew their agreement at the end of the term, subject to approval and the payment of a renewal fee. Any fees received that are expected to be recognized as revenue within one year are classified as current deferred revenue on the balance sheets.
In addition to initial franchise fees, Golden Krust Caribbean Restaurant also collects royalty income, which is recognized over the term of the franchise agreement based on a percentage of the franchisee's gross sales. Similarly, advertising fees, typically a percentage of gross sales, are collected weekly and recognized over the term of the franchise agreement as the underlying sales occur.
Golden Krust Caribbean Restaurant's accounting policies also address how they handle payments. Royalty and advertising revenue payments are typically due within 30 days. Any royalty or advertising revenue that remains unpaid after 30 days is reserved against, indicating a cautious approach to revenue recognition. This means that Golden Krust Caribbean Restaurant sets aside funds to cover potential losses from unpaid revenues, reflecting a conservative accounting practice.