How does Bw Premier Collection account for operating leases under ASC 842?
Bw_Premier_Collection Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company primarily leases office space, vehicles, and office equipment from third parties. The Company determines if a contract is a lease at inception. A contract contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The lease term begins on the commencement date, which is the date the Company takes possession of the asset and may include options to extend or terminate the lease when it is reasonably certain that the option will be exercised. Certain of the Company's leases contain renewal options for varying periods, which can be exercised at the Company's sole discretion. Leases are classified as operating or finance leases based on factors such as the lease term, lease payments, and the economic life, fair value and estimated residual value of the asset. Where leases include options to purchase the leased asset at the end of the lease term, this is assessed as a part of the Company's lease classification determination.
Under Accounting Standards Codification ("ASC") Leases ("ASC 842"), the Company recognizes a right-of-use ("ROU") asset and lease liability to account for its operating leases. ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized on the commencement date based on the present value of lease payments over the lease term. ROU assets are based on the lease liability (which represents the present value of remaining lease payments) and are increased by prepaid lease payments and decreased by lease incentives received. Lease incentives are amortized through the lease asset as reductions of expense over the lease term. For leases where the Company is reasonably certain to exercise a renewal option, such option periods have been included in the determination of the Company's ROU assets and lease liabilities.
Leases typically contain rent escalations over the lease term. The Company recognizes expense for these leases on a straight-line basis over the lease term. Certain leases require the Company to pay taxes, insurance, maintenance and other operating expenses associated with the leased asset. Such amounts are not included in the measurement of the ROU assets and lease liabilities to the extent they are variable in nature. These variable lease costs are recognized as a variable lease expense when incurred.
Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
As a practical expedient, lease agreements with lease and non-lease components are accounted for as a single lease component for all asset classes. The Company estimates contingent lease incentives whe
Source: Item 23 — Receipts (FDD pages 54–203)
What This Means (2025 FDD)
According to Bw Premier Collection's 2025 Franchise Disclosure Document, the company primarily leases office space, vehicles, and office equipment from third parties. Bw Premier Collection determines if a contract is a lease at inception, defining a lease as a contract that conveys the right to control the use of an identified asset for a period in exchange for consideration. The lease term begins when Bw Premier Collection takes possession of the asset and may include options to extend or terminate the lease if it's reasonably certain that the option will be exercised. Leases are classified as operating or finance leases based on factors like the lease term, lease payments, economic life, fair value, and estimated residual value of the asset. If leases include options to purchase the asset at the end of the term, this is considered in the lease classification.
Under Accounting Standards Codification (ASC) 842, Bw Premier Collection recognizes a right-of-use (ROU) asset and a lease liability for its operating leases. ROU assets represent the company's right to use an underlying asset for the lease term, while lease liabilities represent the obligation to make lease payments. These assets and liabilities are recognized on the commencement date based on the present value of lease payments over the lease term. ROU assets are based on the lease liability, increased by prepaid lease payments, and decreased by lease incentives received, which are then amortized through the lease asset as reductions of expense over the lease term. If Bw Premier Collection is reasonably certain to exercise a renewal option, the option periods are included in determining the ROU assets and lease liabilities.
Bw Premier Collection's leases typically include rent escalations over the lease term, and the company recognizes expense for these leases on a straight-line basis. Certain leases require Bw Premier Collection to pay taxes, insurance, maintenance, and other operating expenses associated with the leased asset. However, these amounts are not included in the measurement of the ROU assets and lease liabilities if they are variable; instead, these variable lease costs are recognized as a variable lease expense when incurred. The company accounts for lease agreements with lease and non-lease components as a single lease component for all asset classes as a practical expedient.