{"schema_version":2,"canonical_url":"https://asc.understandingaccounting.org/asc/606/952/#55-implementation-guidance-and-illustrations","source":"FASB Accounting Standards Codification, Basic View","usage":"Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective.","topic":"606","topic_title":"Revenue from Contracts with Customers","subtopic":"606-952","subtopic_title":"Franchisors","section":{"number":"55","label":"55 Implementation Guidance and Illustrations","anchor":"55-implementation-guidance-and-illustrations","is_sec":false,"groups":[{"block":null,"heading":"Illustrations","paragraphs":[{"citation":"606-952-55-1","para":"55-1","html":" An entity enters into a contract with a customer and promises to grant a franchise license to open a restaurant location. The franchise license term is 10 years. In addition to the license, the entity also promises to provide two services related to the opening of the franchise location—site selection and training. The entity receives a fixed fee of $25,000, as well as a sales-based royalty of 5 percent of the customer's sales for the term of the license. The fixed consideration of $25,000 is payable on or before the opening of the restaurant location. The entity first assesses whether it is eligible for the practical expedient for identifying performance obligations in paragraph 952-606-25-2. The entity determines that it is eligible because it is not a public business entity, it is a franchisor that is within the scope of Topic 952, and it has entered into a franchise agreement with a customer. In applying the practical expedient, the entity compares its pre-opening services (training and site selection) to the list of services in paragraph 952-606-25-2 instead of applying the guidance in paragraph 606-10-25-19. The entity determines that those services may be accounted for as distinct from the franchise license because they are consistent with the list of services in paragraph 952-606-25-2. The entity makes an accounting policy election to account for all pre-opening services that are consistent with the list in paragraph 952-606-25-2 as a single performance obligation. Therefore, the entity determines that it has two performance obligations—a franchise license and pre-opening services. The entity then applies the guidance in paragraphs to allocate the transaction price to the performance obligations and the guidance in paragraphs and 606-10-55-65 through 55-65B to determine when and how to recognize revenue for satisfaction of the performance obligations. The entity discloses its use of the practical expedient and its accounting policy election to treat the pre-opening services as a single performance obligation in accordance with the disclosure requirements in paragraphs .