What is the objective of Accounting Standards Update 2016-02, Leases, that Bumble Roofing adopted?
Bumble_Roofing Franchise · 2025 FDDAnswer from 2025 FDD Document
Adoption of New Accounting Policies
Accounting Standards Update 2016-02, Leases
Effective October 1, 2022, the Company adopted Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842). The objective of this ASU is to increase transparency and comparability in financial reporting by requiring balance sheet recognition of leases and note disclosure of certain information about lease arrangements. The Company adopted ASU 2016-02 using the modified retrospective method. This method allows the standard to be applied retrospectively through a cumulative catch-up adjustment to equity recognized upon adoption, if necessary. Adoption of ASU 2016-02 did not result in changes to the Company's beginning equity balance on October 1, 2022. Upon adoption, the Company elected to use risk-free discount rate, an option only available to private entities, when calculating the present value of future lease payments if an interest rate is not explicit in a lease agreement.
Adoption of this ASU resulted in the Company recording right-of-use ("ROU") assets of $3,397,752 and corresponding operating lease liabilities of $3,953,689 on October 1, 2022 which represents the present value of future lease payments on the Company's office and warehouse leases further detailed in Note 8 at the date of adoption. The difference in ROU asset and operating lease liability at inception is due to a deferred rent and certain tenan
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 53)
What This Means (2025 FDD)
According to Bumble Roofing's 2025 Franchise Disclosure Document, the company adopted Accounting Standards Update 2016-02, Leases (Topic 842) effective October 1, 2022. The objective of this update is to enhance transparency and comparability in financial reporting. This is achieved by mandating the recognition of leases on the balance sheet and requiring detailed note disclosures regarding lease arrangements.
For a prospective Bumble Roofing franchisee, this means that the financial statements will provide a clearer picture of the company's lease obligations. This includes leases for office and warehouse spaces. The adoption of ASU 2016-02 resulted in Bumble Roofing recording right-of-use (ROU) assets of $3,397,752 and operating lease liabilities of $3,953,689 on October 1, 2022. The difference between the ROU asset and the operating lease liability at the beginning was $555,937, due to deferred rent and tenant allowances.
The adoption of this standard did not change the company's beginning equity balance on October 1, 2022. Bumble Roofing chose to use a risk-free discount rate, an option available to private entities, when calculating the present value of future lease payments if an interest rate was not clearly stated in the lease agreement. In 2024, the company obtained additional ROU assets through operating leases of approximately $484,000.