What accounting standard did Checkersrallys adopt in fiscal year 2022 that impacted the reserves for restaurant retirement and refranchising costs?
Checkersrallys Franchise · 2025 FDDAnswer from 2025 FDD Document
-------------|----|------------------------------|----|---------------|----|-----------------|-----|----------|---|--------------------------| | For the year ended January 2, 2023 | S | 4.290 | $ | 8€ | S | - | S | (4.290) | S | 92 | | For the year ended January 3, 2022 | $ | 4.834 | $ | 375 | $ | (1.842) | S | 923 | S | 4.290 |
The Company adopted ASC 842, Leases, in fiscal year 2022 and at the time of transition the $4.3 million in reserves for restaurant retirement and refranchising costs were included as a reduction to "operating right-of-use assets, net." Subsequent to its adoption of ASC 842, the Company assesses leases for impairment and no longer recognizes reserves for restaurant retirement and refranchising costs. Accordingly, there was no activity related to restaurant retirement or refranchising for the year ended January 1, 2024 in either the Predecessor or Successor periods. (See Note 16. Leases).
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkersrallys's 2025 Franchise Disclosure Document, in fiscal year 2022, the company adopted ASC 842, Leases. This adoption impacted the $4.3 million in reserves for restaurant retirement and refranchising costs, which were then included as a reduction to "operating right-of-use assets, net."
Following the adoption of ASC 842, Checkersrallys assesses leases for impairment and no longer recognizes reserves for restaurant retirement and refranchising costs. Consequently, the document indicates that there was no activity related to restaurant retirement or refranchising for the year ended January 1, 2024, in either the Predecessor or Successor periods.
Before adopting ASC 842, Checkersrallys accounted for refranchising transactions on an undiscounted basis, following ASC 840. This required the company to recognize a reserve in the amount of the exposure under the sublease and recognize the loss in the period the sublease was executed. With the adoption of ASC 842 on January 4, 2022, reserves for restaurant retirement costs and sublease subsidies for lease agreements where Checkersrallys is the lessee are now captured as an adjustment to the right-of-use assets at the time of transition.