How did Closet Storage Concepts apply ASU 2016-02?
Closet_Storage_Concepts Franchise · 2025 FDDAnswer from 2025 FDD Document
On January 1, 2022, the Company adopted ASU 2016‐02 using the modified retrospective approach, which permits application of this new guidance at the beginning of the period of adoption, with single year presentation. The Company also elected the package of practical expedients permitted under the transition guidance within ASU 2016‐02, which among other things, permits the Company to not reassess under the new standard the Company's prior conclusions about lease identification, lease classification and initial direct costs. Accordingly, the adoption of the new standards had no impact on previously reported income, expenses and equity. As part of this adoption, the Company elected not to record operating right‐of‐use assets or operating lease liabilities for leases with an initial term of 12 months or less.
Payments on those leases will be recognized on a straight‐line basis through the Company's financial statements of operations over the lease term. The Company also elected not to combine lease and non‐lease components on all new or modified operating leases into a single lease component for all classes of assets. See Note 8.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 59)
What This Means (2025 FDD)
According to Closet Storage Concepts' 2025 Franchise Disclosure Document, the company adopted ASU 2016-02, "Leases" on January 1, 2022, using the modified retrospective approach, which allows for application at the beginning of the adoption period with single-year presentation. Closet Storage Concepts also elected a package of practical expedients, which permitted them not to reassess prior conclusions about lease identification, lease classification, and initial direct costs under the new standard. The adoption of these new standards did not impact previously reported income, expenses, and equity.
Closet Storage Concepts elected not to record operating right-of-use assets or operating lease liabilities for leases with an initial term of 12 months or less. Payments for these short-term leases are recognized on a straight-line basis in the company's financial statements of operations over the lease term. Additionally, Closet Storage Concepts chose not to combine lease and non-lease components on all new or modified operating leases into a single lease component for all classes of assets.
For a prospective Closet Storage Concepts franchisee, this means that the franchisor's financial statements reflect lease accounting under these specific guidelines. If a franchisee is reviewing these statements, understanding these accounting policies is crucial for accurate financial analysis. Specifically, the treatment of short-term leases and the separation of lease and non-lease components can affect how expenses are reported.