How did Black Bear Diner adopt the FASB ASC 326 standard?
Black_Bear_Diner Franchise · 2025 FDDAnswer from 2025 FDD Document
Recently Adopted Accounting Policies: In June 2016, the FASB issued guidance ("FASB ASC 326") which significantly changed how entities will measure credit losses for most financial assets and certain other instruments that aren't measured at fair value through net income. The most significant change in this standard is a shift from the incurred loss model to the expected loss model. The use of a forward-looking approach based on expected losses rather than incurred losses to estimate credit losses on certain types of financial instruments may result in the earlier recognition of allowances for losses. Under the standard, disclosures are required to provide users of the financial statements with useful information in analyzing an entity's exposure to credit risk and the measurement of credit losses. Financial assets held by the company that are subject to the guidance in FASB ASC 326 are primarily trade accounts receivable. The Company adopted the standard effective December 29, 2022 using the prospective approach. The impact of the adoption was not considered material to the financial statements and primarily resulted in new/enhanced disclosures only.
Source: Item 23 — RECEIPT (FDD pages 56–243)
What This Means (2025 FDD)
According to the 2025 Black Bear Diner Franchise Disclosure Document, Black Bear Diner adopted FASB ASC 326, concerning the measurement of credit losses for financial assets, effective December 29, 2022, utilizing the prospective approach. The most significant change dictated by this standard is the shift from an incurred loss model to an expected loss model. This means Black Bear Diner now uses a forward-looking approach based on expected losses, rather than only accounting for losses that have already occurred, to estimate credit losses on financial instruments.
For Black Bear Diner, the financial assets subject to FASB ASC 326 primarily consist of trade accounts receivable, which are amounts due from franchised restaurants. The company assesses these receivables at face value, minus an allowance for potential uncollectible accounts. This allowance is determined based on historical losses, the franchisee's current ability to pay, existing economic conditions, and the overall economic outlook. Black Bear Diner monitors these accounts and adjusts its expenses to reflect its estimate of potential credit losses. Balances are charged off against the allowance when they are deemed unrecoverable.
The FDD indicates that the adoption of this standard did not have a material impact on Black Bear Diner's financial statements, primarily resulting in new or enhanced disclosures. As of December 27, 2023, and December 28, 2022, no allowance for uncollectible accounts was deemed necessary. This suggests that Black Bear Diner has been effectively managing its accounts receivable from franchisees and related parties. A prospective franchisee should note that while the initial impact was immaterial, ongoing economic conditions and the financial health of other franchisees could influence future credit loss estimates and the need for allowances.