How does Marble Slab Creamery recognize franchise fee revenue from the sale of individual franchises?
Marble_Slab_Creamery Franchise · 2025 FDDAnswer from 2025 FDD Document
Franchise Fees - The franchise arrangement is documented in the form of a franchise agreement. The franchise arrangement requires the Company to perform various activities to support the brand that do not directly transfer goods and services to the franchisee, but instead represent a single performance obligation, which includes the transfer of the franchise license. The services provided by the Company are highly interrelated with the franchise license and are considered a single performance obligation. Franchise fee revenue from the sale of individual franchises is recognized over the term of the individual franchise agreement on a straight-line basis. Unamortized non-refundable deposits collected in relation to the sale of franchises are recorded as deferred income.
The franchise fee may be adjusted from time to time at management's discretion. Deposits are non-refundable upon acceptance of the franchise application. In the event a franchisee does not comply with their development timeline for opening franchise stores, the franchise rights may be terminated, at which point the franchise fee revenue is recognized for non-refundable deposits.
Source: Item 21 — FINANCIAL STATEMENTS (FDD pages 100–101)
What This Means (2025 FDD)
According to Marble Slab Creamery's 2025 Franchise Disclosure Document, the company recognizes franchise fee revenue from individual franchise sales over the term of the franchise agreement using a straight-line basis. This means that instead of recognizing the entire franchise fee as revenue upfront, Marble Slab Creamery recognizes a portion of the revenue each month or year throughout the duration of the agreement.
This approach aligns with accounting standards that require revenue to be recognized when it is earned. Marble Slab Creamery considers the services they provide to be highly interrelated with the franchise license, and thus recognizes the revenue over time as they fulfill their obligations to support the brand. Any non-refundable deposits collected are initially recorded as deferred income, which means they are not recognized as revenue until they are earned.
However, there is an exception to this general rule. If a franchisee fails to comply with the development timeline for opening their store, Marble Slab Creamery may terminate the franchise rights. In such cases, the company recognizes the franchise fee revenue for any non-refundable deposits it has collected. This means that Marble Slab Creamery recognizes the revenue immediately if the franchisee defaults on their obligations.