In short
A franchisor usually grants a license to its symbolic intellectual property, its brand and system, so an upfront franchise fee is recognized over the franchise term. Ongoing royalties based on the franchisee's sales are recognized as those sales occur.
Key takeaways
- Distinct goods or services, such as equipment sold to the franchisee, are separate performance obligations.
- Private companies can elect to treat certain pre-opening services as distinct from the license.
- Advertising contributions are generally part of the license.
Where it's tested
BAR: Revenue for Specific Arrangements — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A franchisor receives an initial franchise fee and will provide ongoing support plus the right to use its brand. The initial fee should generally be: