After the commencement date, how is the amount of lease liabilities adjusted by Cool Binz?

According to Cool Binz's 2025 Franchise Disclosure Document, the company adjusts lease liabilities after the commencement date to reflect the accretion of interest and to account for lease payments made. At the beginning of the lease, Cool Binz calculates lease liabilities based on the present value of lease payments throughout the lease term, which includes fixed payments (less any lease incentives), variable lease payments tied to an index or rate, and any expected payments under residual value guarantees. The company also factors in the exercise price of a purchase option if it's reasonably certain to be exercised, as well as penalties for terminating the lease if the termination option is likely to be used. For property leases, Cool Binz uses the Prime Rate at the lease commencement date to determine the present value of these lease payments.

For a prospective Cool Binz franchisee, this means that the initial lease liabilities recognized will impact the right-of-use (ROU) assets, which are measured at cost, less accumulated depreciation and impairment losses. The cost of ROU assets includes the amount of lease liabilities recognized, initial direct costs, and lease payments made before the commencement date, minus any lease incentives received. These ROU assets are then depreciated on a straight-line basis over the shorter of the lease term or the estimated useful lives of the assets.

It's important to note that variable lease payments not dependent on an index or rate are recognized as expenses in the period when the event triggering the payment occurs. This approach to lease accounting can affect the franchisee's financial statements, particularly regarding the balance sheet presentation of assets and liabilities and the timing of expense recognition. Franchisees should carefully review their lease agreements and understand how these accounting treatments will impact their financial performance and reporting.