For 1 800 Packouts, what costs are excluded from the measurement of ROU assets and lease liabilities?
1_800_Packouts Franchise · 2025 FDDAnswer from 2025 FDD Document
For all arrangements where it is determined that a lease exists, the related ROU assets and lease liabilities are recorded as either operating or finance leases. At inception or modification, the Company calculates the present value of lease payments using the implicit rate determined from the contract or the Company's incremental borrowing rate applicable to the lease, which is determined by estimating what it would cost the Company to borrow a collateralized amount equal to the total lease payments over the lease term based on the contractual terms of the lease and the location of the leased asset. The present value is adjusted for prepaid lease payments, lease incentives, and initial direct costs. Lease expense is recognized for these leases on a straight-line basis over the expected lease term. Non-lease costs, such as common-area maintenance costs, taxes, and insurance, are not included in the measurement of the ROU assets and lease liabilities.
Source: Item 23 — RECEIPT (FDD pages 67–238)
What This Means (2025 FDD)
According to 1 800 Packouts' 2025 Franchise Disclosure Document, when determining the value of right-of-use (ROU) assets and lease liabilities, certain costs are not included. These exclusions apply to arrangements where a lease is determined to exist, and the assets and liabilities are recorded as either operating or finance leases.
Specifically, the costs excluded from the measurement of ROU assets and lease liabilities are non-lease costs. The 1 800 Packouts FDD specifies that these non-lease costs include common-area maintenance costs, taxes, and insurance.
For a prospective 1 800 Packouts franchisee, this means that when evaluating potential lease agreements, they should be aware that the initial calculation of ROU assets and lease liabilities will not include these additional operating expenses. These costs will need to be accounted for separately in their financial planning and budgeting.