Revenue from Contracts with Customers, ASU - establishes a comprehensive revenue recognition standard for virtually all industries in U.S. GAAP, including those that previously followed industry-specific guidance such as the real estate, construction and software industries. The revenue standard’s core principle is built on the contract between a vendor and a customer for the provision of goods and services. It attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based on the consideration to which the vendor is entitled. The standard requires basic steps: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, (v) recognize revenue when (or as) the entity satisfies a performance obligation. Entities will generally be required to make more estimates and use more judgment than under current guidance, which will be highlighted for users through increased disclosure requirements.

 

The standard requires that the transaction price received from customers be allocated to each separate and distinct performance obligation. The transaction price attributable to each separate and distinct performance obligation is then recognized as the performance obligations are satisfied. We have evaluated franchise fees and have determined that under the new standard the franchise fee is separate and distinct from the overall franchise right. Franchise fees received will be recorded as deferred revenue and recognized as revenue over the term of each respective franchise agreement, typically years.  The Company is still evaluating the financial impact that this change will have on our financial statements.

 

We have evaluated the impact of our franchise contributions to and subsequent expenditures from our marketing fund. We act as an agent in regard to these franchisee contributions and expenditures and as such we do currently include them in our Consolidated Statements of Income. We have determined we are the principal in these arrangements and under the new standard we will include them as revenue and expense items.  The Company is still evaluating the specific effect of this change. We believe it will have a material impact on our gross amount of reported revenues and expenses but we do expect a significant impact on our net income.  The Company will adopt ASU - for fiscal year ending

 

On the FASB issued ASU - Leases, requiring lessees to recognize a right-of-use asset and a lease liability on the balance sheet for all leases with the exception of short-term leases. For lessees, leases will continue to be classified as either operating or finance leases in the income statement. Lessor accounting is similar to the current model but updated to align with certain changes to the lessee model. Lessors will continue to classify leases as operating, direct financing or sales-type leases. The effective date of the new standard for public companies is for fiscal years beginning after Early adoption is permitted. The new standard must be adopted using a modified retrospective transition and requires application of the new guidance at the beginning of the earliest comparative period presented. The Company is planning on early adoption of this standard at the commencement of the new lease beginning The Company will classify the new office lease as an operating lease. The adoption of ASU - is expected to increase the Company’s total assets and liabilities by approximately based on a discounted calculation of the future lease payments, as of A discount rate of is used for the present value calculation of the future lease payments. The Company expects the impact on the results of its operations to equal the amortization of the asset, net of the present value discount, on a straight line basis over the lease term.

 

In the Financial Accounting Standards Board issued ASU - Liabilities – Extinguishments of Liabilities (Subtopic -): Recognition of Breakage for Certain Prepaid Stored-Value Products. The amendments in the ASU are designed to provide guidance and eliminate diversity in the accounting for derecognition of prepaid stored-value product liabilities. Typically, a prepaid stored-value product liability is to be derecognized when it is probable that a significant reversal of the recognized breakage amount will subsequently occur. This is when the likelihood of the product holder exercising its remaining rights becomes remote. This estimate shall be updated at the end of each reporting period. The amendments in this ASU are effective for the annual reporting periods beginning after including the interim periods within that reporting period. Early adoption is permitted. The Company does believe that adoption of this guidance will have a material impact on the Company’s financial position, cash flows or results of operations.

 

Management does believe that there are any other recently issued and effective or yet effective pronouncements as of that would have or are expected to have any significant effect on the Company’s financial position, cash flows or results of operations.