What method did Canopy Lawn Care use to adopt ASU 2016-02?
Canopy_Lawn_Care Franchise · 2025 FDDAnswer from 2025 FDD Document
ion 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 tenant allowa
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 55)
What This Means (2025 FDD)
According to the 2025 FDD, Canopy Lawn Care adopted Accounting Standards Update (ASU) 2016-02, Leases (Topic 842) effective October 1, 2022. The company used the modified retrospective method for this adoption. This method allows the standard to be applied retrospectively through a cumulative catch-up adjustment to equity recognized upon adoption, if necessary.
The adoption of ASU 2016-02 did not result in changes to Canopy Lawn Care'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.
As a result of adopting ASU 2016-02, Canopy Lawn Care recorded right-of-use (ROU) assets of $3,397,752 and corresponding operating lease liabilities of $3,953,689 on October 1, 2022. This represents the present value of future lease payments on the company's office and warehouse leases. The difference between the ROU asset and operating lease liability at inception is due to a deferred rent and certain tenant allowances of $555,937 at October 1, 2022, which has been netted against the ROU asset.