What is included in Bor Restoration's right-of-use (ROU) assets?
Bor_Restoration Franchise · 2024 FDDAnswer from 2024 FDD Document
The Company determines if an arrangement is or contains a lease at inception. Leases are included in right-of-use (ROU) assets and lease liabilities on the balance sheets. ROU assets and lease liabilities reflect the present value of the future minimum lease payments over the lease term, and ROU assets also include prepaid or accrued rent. Operating lease expense is recognized on a straight-line basis over the lease term. The Company does not report ROU assets and lease liabilities for its short-term leases (leases with a term of 12 months or less). Instead, the lease payments of those leases are reported as lease expense on a straight-line basis over the lease term.
During the years ended December 31, 2023, 2022 and 2021, the amount of services that were recognized over time amounted to $4,095,298, $0 and $393,597, respectively; and no services were recognized at a point in time.
The Company evaluated current contracts to determine which met the criteria of a lease. The ROU asset represents the Company's right to use the underlying asset for the lease term, and the lease liability represents the Company's obligation to make lease payments arising from the lease. The ROU asset and lease liability, all of which arise from an operating lease, were calculated based on the present value of the future minimum lease payments over the lease term. The Company made an accounting policy election to use a risk-free rate in lieu of its current incremental borrowing rate to discount future lease payments. The weighted average discount rate applied to calculate lease liabilities as of December 31, 2023, was 6%.
The Company's operating lease is a noncancellable lease for office space commencing August 1, 2021 through July 31, 2024. For the years ended December 31, 2023, 2022 and 2021, total operating lease cost was $50,296, $50,738, and $0, respectively. As of December 31, 2023 and 2022, the weighted-average remaining lease term for the Company's operating lease was 1.56 and .58 years, respectively.
Cash paid for the operating lease for the year ended December 31, 2023 and 2022, was $48,000. Rent expense for the years ended December 31, 2021 (pre-adoption of the new standards) was $20,000.
Source: Item 23 — Receipts (FDD pages 40–202)
What This Means (2024 FDD)
According to Bor Restoration's 2024 Franchise Disclosure Document, right-of-use (ROU) assets include leases on the balance sheets. These ROU assets reflect the present value of future minimum lease payments over the lease term. Additionally, ROU assets also account for prepaid or accrued rent.
Bor Restoration recognizes operating lease expenses on a straight-line basis over the lease term. However, the company does not report ROU assets and lease liabilities for short-term leases, defined as those with a term of 12 months or less. Instead, the lease payments for these short-term leases are reported as lease expenses on a straight-line basis over the lease term.
In 2023, 2022 and 2021, Bor Restoration recognized $4,095,298, $0 and $393,597, respectively, in services over time, with no services recognized at a specific point in time. The ROU asset is the company's right to use the underlying asset for the lease term, while the lease liability is the obligation to make lease payments arising from the lease. These calculations are based on the present value of future minimum lease payments over the lease term. Bor Restoration uses a risk-free rate instead of its incremental borrowing rate to discount future lease payments; the weighted average discount rate as of December 31, 2023, was 6%.
Bor Restoration's operating lease is a noncancellable lease for office space that began on August 1, 2021, and continues through July 31, 2024. The total operating lease cost for the years ended December 31, 2023, 2022, and 2021, was $50,296, $50,738, and $0, respectively. As of December 31, 2023 and 2022, the weighted-average remaining lease term for the Company's operating lease was 1.56 and .58 years, respectively. Cash paid for the operating lease for the year ended December 31, 2023 and 2022, was $48,000. Rent expense for the years ended December 31, 2021 (pre-adoption of the new standards) was $20,000.