How are lease liabilities for Buildingstars recognized and measured at the commencement date?
Buildingstars Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company determines if an arrangement is a lease at inception by determining whether the agreement conveys the right to control the use of the identified asset for a period of time, whether the Company has the right to obtain substantially all of the economic benefits from use of the identified asset, and the right to direct the use of the asset. Lease liabilities are recognized at the commencement date based upon the present value of the remaining future minimum lease payments over the lease term using the rate implicit in the lease or the risk-free rate. The risk-free rate is defined as the daily treasury par yield curve rate for a period of time that approximates the lease term. The Company's lease terms include options to renew or terminate the lease when it is reasonably certain that it will exercise the option.
The lease right-of-use assets are initially measured at the carrying amount of the lease liability and adjusted for any prepaid or accrued lease payments, remaining balance of lease incentives received, unamortized initial direct costs, or impairment charges relating to the right-of-use-asset. Certain leases contain escalation clauses, which are factored into the right-of-use asset where appropriate. Lease expense for minimum lease payments are recognized on straight-line basis over the lease term.
Source: Item 20 — OUTLETS AND FRANCHISEE INFORMATION (FDD pages 34–43)
What This Means (2025 FDD)
According to Buildingstars' 2025 Franchise Disclosure Document, the company determines if an arrangement is a lease at inception by assessing whether the agreement conveys the right to control the use of the identified asset for a period of time, whether the company has the right to obtain substantially all of the economic benefits from use of the identified asset, and the right to direct the use of the asset.
Buildingstars recognizes lease liabilities at the commencement date based on the present value of the remaining future minimum lease payments over the lease term. This calculation uses the rate implicit in the lease or, if that's not readily determinable, the risk-free rate. The risk-free rate is defined as the daily treasury par yield curve rate for a period of time that approximates the lease term.
Furthermore, Buildingstars' lease terms may include options to renew or terminate the lease, which are considered when it is reasonably certain that the option will be exercised. The lease right-of-use assets are initially measured at the carrying amount of the lease liability and adjusted for any prepaid or accrued lease payments, remaining balance of lease incentives received, unamortized initial direct costs, or impairment charges relating to the right-of-use-asset. Certain leases contain escalation clauses, which are factored into the right-of-use asset where appropriate. Lease expense for minimum lease payments are recognized on straight-line basis over the lease term.