What does Bor Restoration's lease liability represent?
Bor_Restoration Franchise · 2024 FDDAnswer from 2024 FDD Document
------------|--------------|--------------| | Deferred revenue, beginning of year | $ | $ 94,350 | $ | | Revenue recognized that was included in deferred at the beginning of the year | | (94,350) | | | Revenue recognized during the year | (4,095,298) | | (393,597) | | Increase in deferred revenue due to cash received | 4,233,850 | | 487,974 | | during the year | $ 138,552 | $ | $ 94,377 |
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.
(5) Leases
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 liabilitie
Source: Item 23 — Receipts (FDD pages 40–202)
What This Means (2024 FDD)
According to Bor Restoration's 2024 Franchise Disclosure Document, the lease liability represents the company's obligation to make lease payments arising from the lease. The ROU (Right-of-Use) asset represents the company's right to use the underlying asset for the lease term. Both the ROU asset and lease liability, which stem from an operating lease, are calculated based on the present value of the future minimum lease payments over the lease term.
Bor Restoration uses a risk-free rate instead of its current incremental borrowing rate to discount future lease payments. As of December 31, 2023, the weighted average discount rate applied to calculate lease liabilities was 6%. The company's operating lease is a noncancellable lease for office space that commenced on August 1, 2021, and extends through July 31, 2024.
For the years ended December 31, 2023, 2022, and 2021, the 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 0.58 years, respectively. Cash paid for the operating lease for the years 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.