What does the lease liability represent regarding Bor Restoration's leases?
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 pol
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 financial obligation to make lease payments arising from a lease. This liability, along with the right-of-use (ROU) asset, is associated with the company's operating lease. The ROU asset signifies Bor Restoration's right to use the underlying asset for the duration of the lease term.
The lease liability and ROU asset 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 incremental borrowing rate to discount these future lease payments. As of December 31, 2023, the weighted average discount rate used to calculate lease liabilities was 6%.
Bor Restoration's operating lease is a non-cancellable lease for office space that began on August 1, 2021, and extends 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. The weighted-average remaining lease term as of December 31, 2023, was 1.56 years.