What accounting standard did Learningrx adopt on January 1, 2020, and how was it implemented?
Learningrx Franchise · 2025 FDDAnswer from 2025 FDD Document
On January 1, 2020, the Corporation adopted ASC 606, Revenue from Contracts with Customers using the modified retrospective method. This method allows the standard to be applied retrospectively through a cumulative catch-up adjustment recognized upon adoption. As such, comparative information in the Corporation's financial statements has not been restated and continues to be reported under the accounting standards in effect for those periods. Management determined that the effect of adopting ASC 606 did not have a material effect on the Corporation's financial statements.
ASC 606 provides that revenues are to be recognized when control of promised goods or services is transferred to a customer in an amount that reflects the considerations expected to be received for those goods or services. In implementing ASC 606, the Corporation evaluated all revenue sources using the fivestep approach: identify the contract, identify the performance obligations, determine the transaction price, allocate the transaction price, and recognize revenue.
For each franchised location, the Corporation enters into a formal franchise agreement that clearly outlines the transaction price, which includes an initial fee and ongoing royalties, marketing fees, and technology fees, and the Corporation's performance obligations.
Source: Item 23 — RECEIPT (FDD pages 54–209)
What This Means (2025 FDD)
According to Learningrx's 2025 Franchise Disclosure Document, the company adopted ASC 606, Revenue from Contracts with Customers, on January 1, 2020. This accounting standard was implemented using the modified retrospective method.
The modified retrospective method allows Learningrx to apply the new standard retroactively by making a cumulative catch-up adjustment upon adoption, without restating the comparative information in the prior financial statements. This means that the financial figures from previous years were not changed to reflect the new accounting standard, and they continue to be reported under the accounting standards that were in effect for those periods.
Learningrx evaluated all revenue sources using a five-step approach to implement ASC 606. These steps include identifying the contract, identifying the performance obligations, determining the transaction price, allocating the transaction price, and recognizing revenue. For each franchised location, Learningrx enters into a formal franchise agreement that outlines the transaction price, including the initial fee, ongoing royalties, marketing fees, and technology fees, as well as the company's performance obligations. Management determined that the adoption of ASC 606 did not have a material effect on Learningrx's financial statements.