What accounting standard did Mrcool adopt on January 1, 2024, and what area does it concern?
Mrcool Franchise · 2025 FDDAnswer from 2025 FDD Document
At inception, the Company adopted Accounting Standards Codification 606, Revenue from Contracts with Customers ("ASC 606"). Revenue is recognized when performance obligations under the terms of the contracts with our customers are satisfied.
The Company generates revenues by selling franchise licenses, selling products to franchisees, and through royalties. Revenue from the initial franchise license fee is recognized as a performance obligation satisfied over time. Revenue from the sale of MRCOOL products and royalties are recognized at a point in time.
In recognizing revenue, the company has elected to apply the practical expedient to account for certain pre-opening services performed for franchisees as distinct from the franchise license itself, and also has made an accounting policy election to account for all such services as a single performance obligation.
Source: Item 23 — RECEIPTS (FDD pages 55–263)
What This Means (2025 FDD)
According to the 2025 Mrcool Franchise Disclosure Document, Mrcool adopted Accounting Standards Codification 606, Revenue from Contracts with Customers ("ASC 606") at inception. This accounting standard dictates when revenue is recognized, specifically when performance obligations under contracts with customers are satisfied.
For Mrcool, this means revenue from franchise license fees is recognized over time as the performance obligations are met. Revenue from the sale of Mrcool products and royalties are recognized at a specific point in time, presumably when the sale is completed or the royalty is earned.
The company also elected to apply a practical expedient, treating certain pre-opening services for franchisees as distinct from the franchise license. They also made an accounting policy election to account for all such services as a single performance obligation. This affects how Mrcool accounts for and reports its revenue related to franchise sales and ongoing royalties.