How does Ben Jerrys account for its leases according to ASC 842?
Ben_Jerrys Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company accounts for its leases in accordance with ASC 842 (Topic 842), Leases. The Company determines if an arrangement is or contains a lease at contract inception. The Company recognizes a right-of-use (ROU) asset and a lease liability at the lease commencement date. For both operating and financing leases, the Company separates lease and non-lease components. Lease liabilities are recognized at the present value of the fixed lease payments using a discount rate based on similar borrowing rates available to the Company. Right of use assets are recognized based on the initial present value of the fixed lease payments plus any direct costs from executing the leases. Lease assets are tested for impairment in the same manner as long-lived assets used in operations. The Company does not recognize ROU assets and lease liabilities for short-term leases that have a lease term of 12 months or less. The Company recognizes the lease payments associated with its short-term transportation equipment leases as an expense on a straight-line basis over the lease term. As of December 31, 2023, the weighted average discount rate of outstanding operating leases was 2.3%.
Source: Item 21 — FINANCIAL STATEMENTS (FDD pages 89–133)
What This Means (2025 FDD)
According to Ben Jerrys's 2025 Franchise Disclosure Document, the company adheres to ASC 842 (Topic 842), Leases, for its lease accounting. Ben Jerrys determines if an arrangement contains a lease at the contract's inception and recognizes a right-of-use (ROU) asset and a lease liability at the commencement date of the lease. The company separates lease and non-lease components for both operating and financing leases. Lease liabilities are recorded at the present value of fixed lease payments, using a discount rate based on similar borrowing rates available to the company. ROU assets are recognized based on the initial present value of the fixed lease payments, plus any direct costs from executing the leases. Lease assets are tested for impairment similarly to long-lived assets used in operations.
Ben Jerrys does not recognize ROU assets and lease liabilities for short-term leases with a term of 12 months or less. Payments for these short-term transportation equipment leases are expensed on a straight-line basis over the lease term. As of December 31, 2023, the weighted average discount rate for outstanding operating leases was 2.3%.
For a potential Ben Jerrys franchisee, this means that the financial statements will reflect lease obligations as both assets (right-of-use) and liabilities, impacting the balance sheet. Short-term leases, commonly those less than a year, are treated differently, with payments expensed directly. The 2.3% weighted average discount rate as of the end of 2023 provides insight into the interest rate environment Ben Jerrys experienced when establishing its leases, which could influence the overall cost of leasing for franchisees as well.