What does Bor Restoration's ROU asset 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 liabilities as of December 31, 2023, was 6%.
The Company's operating lease is a noncancellable leas
Source: Item 23 — Receipts (FDD pages 40–202)
What This Means (2024 FDD)
According to Bor Restoration's 2024 Franchise Disclosure Document, the ROU asset represents the company's right to use an underlying asset for the lease term. In conjunction, the lease liability represents Bor Restoration's obligation to make lease payments arising from the lease. The ROU asset and lease liability are derived from an operating lease and 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 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 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 ending 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, and as of December 31, 2022, it was 0.58 years.
For the years ending December 31, 2023 and 2022, cash payments for the operating lease were $48,000. Rent expense for the year ending December 31, 2021, before the adoption of the new standards, was $20,000. These figures provide insight into Bor Restoration's lease obligations and how they are accounted for in their financial statements. A prospective franchisee can use this information to understand the company's financial health and stability.