How did the adoption of ASU 2016-13 affect Cool Binz's retained earnings as of January 1, 2023?
Cool_Binz Franchise · 2025 FDDAnswer from 2025 FDD Document
ber 31, | 2024 | 2023 | (as restated) | | |---|---|---|---|---| | Current income tax expense | $126 | $212 | $726 | | | Deferred income tax expense (recovery) | 356 | 265 | (2,595) | | | Total Income Tax Expense (Recovery) | $482 | $477 | $(1,869) | | As a result of the prior period adjustment, retained earnings as of December 31, 2022 decreased from $4,558, as originally reported, to $1,452.
Notes to Consolidated Financial Statements (dollars in thousands)
4. Adoption of New Accounting Pronouncement
As of January 1, 2023, the Company adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments. The ASU includes changes to the accounting and measurement of financial assets, includ
Source: Item 23 — RECEIPTS (FDD pages 63–238)
What This Means (2025 FDD)
According to Cool Binz's 2025 Franchise Disclosure Document, the company adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2016-13 on January 1, 2023. This update, titled Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, brought changes to how Cool Binz accounts for and measures financial assets, specifically accounts receivable and notes receivable. The ASU requires Cool Binz to use current estimates of expected credit losses based on reasonable and supportable forecasts. Cool Binz adopted the ASU using the modified retrospective method.
As a direct result of implementing ASU 2016-13, Cool Binz's retained earnings as of January 1, 2023, decreased from $1,452 to $417. This represents a significant adjustment to the company's financial position at the start of the fiscal year. The financial statement line items for fiscal year 2023 were affected by this change in accounting principle.
For a prospective Cool Binz franchisee, this information is relevant because it provides insight into how accounting standards can impact the franchisor's reported financial health. While the change itself is an accounting adjustment, it reflects a more conservative approach to estimating and accounting for potential credit losses. Franchisees should be aware that changes in accounting principles can affect the franchisor's financial statements and should consider these impacts when evaluating the overall financial stability of Cool Binz.