How does 360 Painting treat fixed lease incentives received after lease commencement?

Leases

The Company accounts for lease contracts in accordance with ASC 842. As of December 31, 2023, the Company's only facility lease is classified as an operating lease. The Company recognizes as asset for the right to use an underlying leased asset for the lease term and records lease liabilities based on the present value of the Company's obligation to make lease payments under the lease. As the Company's lease does not specify an implicit rate, the Company uses a best estimate of its incremental borrowing rate to discount future lease payments. The Company estimates its incremental borrowing rate based on observable information about risk-free interest rates that are the same tenure as the lease term, adjusted for various factors, including the effects of assumed collateral, the nature of how the loan is repaid, and the Company's credit risk.

The Company evaluates options included in its lease agreement to extend or terminate the lease. The Company will reflect the effect of exercising those options in the lease term when it is reasonably certain that the Company will exercise that option. In assessing whether it is reasonably certain that the Company will exercise an option, the Company considers factors such as:

• The lease payments due in any optional period;
• Penalties for failure to exercise (or not exercise) the option;
• Market factors, such as the availability of similar assets and current rental rates for such assets;
• T

Source: Item 21 — FINANCIAL STATEMENTS (FDD page 56)