How is operating lease expense recognized by Bor Restoration?

According to Bor Restoration's 2024 Franchise Disclosure Document, the company recognizes operating lease expenses on a straight-line basis over the lease term. This means that the total cost of the lease is divided evenly over the entire period that the lease is in effect, regardless of when the payments are actually made. This method provides a consistent expense recognition, which can help in analyzing the company's financial performance over time.

Bor Restoration includes leases in right-of-use (ROU) assets and lease liabilities on its balance sheets. These ROU assets and lease liabilities are calculated based on the present value of the future minimum lease payments over the lease term, and ROU assets also include prepaid or accrued rent. However, Bor Restoration does not report ROU assets and lease liabilities for short-term leases, which are leases 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.

For a prospective Bor Restoration franchisee, understanding how lease expenses are recognized is crucial for budgeting and financial planning. The straight-line method ensures that the monthly expense is predictable, which can aid in forecasting profitability. Additionally, the franchisee should be aware of the distinction between short-term and long-term leases, as the accounting treatment differs, potentially impacting the franchisee's financial statements.