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How will the new guidance of permitting private entity

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Question - FASB passed ASU 2021-02 in January 2021. It is a practical expedient that simplifies how private company franchisors analyze certain activities when determining their performance obligations in a franchise agreement.

When a business owner opens a new branch of a franchise, the franchise agreement generally states that the franchisor will support certain pre-opening activities for the benefit of the new branch. Examples of pre-opening activities include training and site selection. Under the new practical expedient, certain pre-opening services will be permitted to be accounted for as distinct from the franchise license.

Required -

1. What is a practical expedient and why is it used by FASB?

2. How will the new guidance of permitting private entity franchisors to classify pre-opening activities as a separate performance obligation(s) impact the franchisors' revenue?

Reference no: EM132942531

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