For Beard Papas leases exceeding 12 months, what accounting treatment is required for lessees?
Beard_Papas Franchise · 2025 FDDAnswer from 2025 FDD Document
The standard requires lessees to recognize a right-of-use asset and lease liability for all leases with terms of more than 12 months. The Company made an accounting policy election not to recognize the asset and liability for leases with a term of 12 months or less. The Company made an accounting policy to use a risk-free rate (a U.S. Treasury rate) for discounting the future payment associated with the existing office lease at the time of its adoption.
Source: Item 23 — RECEIPTS (FDD pages 58–275)
What This Means (2025 FDD)
According to the 2025 Beard Papas FDD, lessees are required to recognize a right-of-use asset and a lease liability for all leases with terms exceeding 12 months. This accounting standard necessitates that franchisees account for their lease obligations as assets and liabilities on their balance sheets, reflecting the right to use the leased property and the corresponding obligation to make lease payments.
Beard Papas also has an accounting policy election not to recognize the asset and liability for leases with a term of 12 months or less. This means that short-term leases do not need to be accounted for on the balance sheet, simplifying the accounting process for these leases.
Furthermore, Beard Papas uses a risk-free rate, specifically a U.S. Treasury rate, for discounting the future payments associated with the existing office lease at the time of its adoption. This discount rate is used to calculate the present value of the lease payments, which determines the value of the right-of-use asset and lease liability recognized on the balance sheet. This approach ensures that the lease obligations are accurately reflected in the financial statements.