How does 1 800 Packouts determine if a contract is or contains a lease at inception or modification?
1_800_Packouts Franchise · 2025 FDDAnswer from 2025 FDD Document
Management determines if a contract is or contains a lease at inception or modification of a contract. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period in exchange for consideration. Control over the use of the identified asset means the lessee has both (a) the right to obtain substantially all of the economic benefits from the use of the asset and (b) the right to direct the use of the asset. Such assets are classified as ROU assets with a corresponding lease liability.
Source: Item 23 — RECEIPT (FDD pages 67–238)
What This Means (2025 FDD)
According to 1 800 Packouts's 2025 Franchise Disclosure Document, the determination of whether a contract is or contains a lease is made by management at the inception or modification of the contract. A contract is considered a lease if it conveys the right to control the use of an identified asset for a specific period in exchange for consideration.
For 1 800 Packouts, control over the use of the identified asset means the lessee has both the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset. These assets are then classified as Right-of-Use (ROU) assets with a corresponding lease liability.
This determination is crucial for 1 800 Packouts because it dictates how the company accounts for its leases, impacting its financial statements. Understanding these lease accounting principles is important for prospective franchisees as it provides insight into how 1 800 Packouts manages its assets and liabilities related to leased properties and equipment.