Under what conditions does Craters & Freighters elect not to recognize ROU assets and lease liabilities?
Craters_Freighters Franchise · 2025 FDDAnswer from 2025 FDD Document
For all underlying classes of assets, the Company has elected to not recognize ROU assets and lease liabilities for short-term leases that have a lease term of 12 months or less at lease commencement and do not include an option to purchase the underlying asset that the Company is reasonably certain to exercise. Leases containing termination clauses in which either party may terminate the lease without cause and the notice period is less than 12 months are deemed short-term leases with lease costs included in short-term lease expense. The Company recognizes short-term lease cost on a straight-line basis over the lease term.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 49)
What This Means (2025 FDD)
According to Craters & Freighters' 2025 Franchise Disclosure Document, Craters & Freighters does not recognize right-of-use (ROU) assets and lease liabilities under specific conditions related to short-term leases. This accounting policy applies to all underlying asset classes.
The key condition is that the lease term must be 12 months or less at the commencement of the lease. Additionally, this exception only applies if the lease does not include an option for Craters & Freighters to purchase the underlying asset, or if there is an option, Craters & Freighters is not reasonably certain to exercise it.
Furthermore, leases that contain termination clauses allowing either party to terminate the lease without cause, where the notice period is less than 12 months, are also treated as short-term leases. In these cases, Craters & Freighters includes the lease costs in short-term lease expense, recognizing these costs on a straight-line basis over the lease term.