When does Hyper Kidz recognize revenue from initial fees?
Hyper_Kidz Franchise · 2024 FDDAnswer from 2024 FDD Document
Revenue from initial franchise fees is allocated to the performance obligations in the franchise agreement that are distinct from the territory rights and symbolic intellectual property. The amount allocated to each identified performance obligation is determined using the expected cost plus a margin or fair market value approach. Revenue from initial fees is recognized when the performance obligation is satisfied and control of the good or service has been transferred to the franchisee. Unearned initial fee revenues will be recorded as non-refundable deferred revenue. Commissions and other direct costs related to unsatisfied performance obligations will be recorded as a franchise acquisition asset and are recognized as expense when the related performance obligation has been satisfied.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 52)
What This Means (2024 FDD)
According to the 2024 Hyper Kidz Franchise Disclosure Document, revenue from initial franchise fees is allocated to specific performance obligations outlined in the franchise agreement, separate from territory rights and intellectual property. The amount allocated to each performance obligation is determined using the expected cost plus a margin or fair market value approach.
Hyper Kidz recognizes revenue from initial fees when the performance obligation is satisfied. This occurs when control of the related good or service has been transferred to the franchisee. Until this transfer happens, the initial fee revenues are recorded as non-refundable deferred revenue.
In addition, commissions and other direct costs related to performance obligations that have not yet been satisfied are recorded as a franchise acquisition asset. These costs are then recognized as expenses at the same time the related performance obligation is fulfilled. This accounting practice ensures that Hyper Kidz matches the recognition of revenue with the associated costs of acquiring the franchise.