What accounting standard does Bw Premier Collection use for leases?
Bw_Premier_Collection Franchise · 2025 FDDAnswer from 2025 FDD Document
f the Company's lease classification determination.
Under Accounting Standards Codification ("ASC") Leases ("ASC 842"), which the Company adopted as of December 1, 2022 (see note 1(u)), the Company recognizes a right-of-use ("ROU") asset and lease liability to account for its 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 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.
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 adopted Accounting Standards Codification (ASC) 842, "Leases", as of December 1, 2022. This standard requires Bw Premier Collection to recognize a right-of-use (ROU) asset and a lease liability on its balance sheet for leases with terms longer than twelve months. The ROU asset represents the company's right to use an underlying asset for the lease term, while the lease liability represents the obligation to make lease payments.
The ROU assets and lease liabilities are recognized on the date the lease begins, based on the present value of lease payments over the lease term. The ROU assets are based on the lease liability, increased by prepaid lease payments and decreased by lease incentives received. Lease incentives are then amortized through the lease asset as reductions of expense over the lease term. For leases where Bw Premier Collection is reasonably certain to exercise a renewal option, the option periods are included in the determination of the ROU assets and lease liabilities.
Bw Premier Collection elected the optional transition method to apply the standard as of the effective date and did not adjust its comparative period consolidated financial statements for the effects of the new standard or make the new, expanded required disclosures for years prior to the effective date. Therefore, the consolidated financial statements for the year ended November 30, 2023, reflect the application of ASC 842, while the consolidated financial statements for the year ended November 30, 2022, were not adjusted and continue to be reported under the accounting guidance, ASC 840, Leases, in effect for that year. The adoption of ASC 842 did not have a material impact on the Company's consolidated financial statements.
For a potential Bw Premier Collection franchisee, this means that if the franchise leases property or equipment, these leases will be accounted for on the balance sheet as assets and liabilities, impacting the franchisee's financial statements. Furthermore, leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet; instead, lease payments are recognized as lease expense on a straight-line basis over the lease term.