What accounting standard does Pump It Up use for revenue recognition from contracts with customers?
Pump_It_Up Franchise · 2025 FDDAnswer from 2025 FDD Document
federal income taxes are not payable, or provided for, by the Company. Members are taxed individually on their share of the Company's earnings. The Company's income or loss is allocated among the members in accordance with the Company's operating agreement. The Company pays income and other taxes to various states based on gross revenue.
The Company follows the income tax standard for uncertain tax positions. The Company recognized no liability for uncertain tax positions as of December 31, 2024 and 2023.
Revenue Recognition
The Company recognizes revenue from contracts with customers in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (Topic 606). Under Topic 606, the Company performs the following five steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the Company satisfies a performance obligation. The Company generates revenue primarily through royalties, brand fund fees and franchise fees.
Royalties
The Company collects royalties, as stipulated in the franchise agreement, currently equal to 6% of gross sales. Royalties are calculated as percentage of sales over the term of the franchise agreement. Royalty revenue represents sales-based royalties that are related entirely to the Company's performance obligation under the franchise agreement and are recognized as franchisee store level sales occur. Royalties are collected weekly or monthly as stipulated in the franchise agreement.
Brand Fund Fees
The Company collects brand fund fees, as stipulated in the franchise agreement, currently equal to a flat fee or 2% of gross sales over the term of the franchise agreement. Brand fund fees are sales-based that are related entirely to the Company's performance obligation under the franchise agreement and are recognized as franchisee store level sales occur. Brand fund fees are collected weekly or monthly as stipulated in the franchise agreement.
Franchise Fees
The Company requires the entire nonrefundable initial franchise fee to be paid upon execution of a franchise agreement, which typically has an initial term of 10 years. Initial franchise fees are recognized ratably on a straight-line basis over the term of the franchise agreement.
Source: Item 23 — RECEIPTS (FDD pages 60–225)
What This Means (2025 FDD)
According to Pump It Up's 2025 Franchise Disclosure Document, the company adheres to Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (Topic 606) for revenue recognition. This standard involves a five-step process: identifying the contract, identifying performance obligations, determining the transaction price, allocating the price to the obligations, and recognizing revenue as the obligations are met. Pump It Up primarily generates revenue through royalties, brand fund fees, and franchise fees.
Royalties, which are currently 6% of gross sales, are collected as stipulated in the franchise agreement and are recognized as franchisee store level sales occur. These royalties are directly tied to Pump It Up's performance obligation under the franchise agreement. Brand fund fees, either a flat fee or 2% of gross sales, are also recognized as franchisee store level sales occur and are related to the company's performance obligation. These fees are collected weekly or monthly, as outlined in the franchise agreement.
Initial franchise fees, which are nonrefundable and paid upon the execution of the franchise agreement (typically with a 10-year term), are recognized ratably on a straight-line basis over the term of the franchise agreement. The services provided by Pump It Up, such as franchisee training, site selection, trademark usage rights, proprietary information, and ongoing operational support, are considered a single performance obligation due to their interrelated nature with the franchise license.