How are lease incentives treated in the determination of Bw Premier Collection's ROU assets?
Bw_Premier_Collection Franchise · 2025 FDDAnswer from 2025 FDD Document
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.
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 recognizes right-of-use (ROU) assets and lease liabilities for its operating leases. These 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.
The FDD states that ROU assets and lease liabilities are recognized on the lease commencement date, based on the present value of lease payments over the lease term. The ROU assets are based on the lease liability, increased by any prepaid lease payments, and importantly, decreased by any lease incentives received. This means that if Bw Premier Collection receives incentives to enter into a lease, these incentives reduce the value of the ROU asset recognized on the balance sheet.
Furthermore, the lease incentives are not immediately recognized as income. Instead, they are amortized through the lease asset as reductions of expense over the lease term. This accounting treatment spreads the benefit of the lease incentive over the entire period that Bw Premier Collection uses the leased asset. For leases where Bw Premier Collection is reasonably certain to exercise a renewal option, the option periods are included in the determination of ROU assets and lease liabilities.