What discount rate did Craters & Freighters use for their lease calculations in 2022?
Craters_Freighters Franchise · 2025 FDDAnswer from 2025 FDD Document
due under the lease contracts include fixed payments.
Information on the operating lease as of and for the years ended December 31, 2023 and 2022, is as follows:
| As of December 31, | 2023 | 2022 |
|---|---|---|
| Lease cost: | ||
| Operating Lease Cost | $ 59,437 $ | 85,687 |
| Variable |
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 49)
What This Means (2025 FDD)
According to Craters & Freighters' 2025 Franchise Disclosure Document, the discount rate used for lease calculations in 2022 was 1.04%. This rate is applied to determine the present value of future lease payments, which is a critical component in calculating lease liabilities. The FDD also shows that the remaining lease term in 2022 was 3.75 years.
For a prospective Craters & Freighters franchisee, understanding the discount rate is essential for assessing the financial impact of lease obligations. The discount rate affects the recognized lease liability and the corresponding right-of-use (ROU) asset on the balance sheet. A lower discount rate generally results in a higher present value of lease payments, increasing both the lease liability and the ROU asset.
It's important to note that Craters & Freighters has elected to use a risk-free rate for a term similar to the underlying lease as the discount rate if the implicit rate in the lease contract is not readily determinable. This approach is compliant with accounting standards and provides a consistent method for valuing lease obligations. Franchisees should consult with financial advisors to fully understand the implications of lease accounting and the impact of discount rates on their financial statements.