How did Crave Cookies account for nonlease components and the lease components to which they relate?
Crave_Cookies Franchise · 2025 FDDAnswer from 2025 FDD Document
Note 3. Operating Leases - ASC 842
Accounting Policies
The Company determines if an arrangement is a lease or contains a lease at inception. Leases result in the recognition of ROU assets and lease liabilities on the balance sheets. ROU assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease, measured on a discounted basis. The Company determines lease classification as operating or finance at the lease commencement date.
Crave Cookies Franchising, LLC Notes to Financial Statements December 31, 2023 and 2022
At lease commencement, the lease liability is measured at the present value of the lease payments over the lease term. The ROU asset equals the lease liability adjusted for any initial direct costs, prepaid or deferred rent, and lease incentives. The Company has made a policy election to use a risk-free rate (the rate of a zero-coupon U.S. Treasury instrument) for the initial and subsequent measurement of all lease liabilities. The risk-free rate is determined using a period comparable with the lease term.
The lease term may include options to extend or to terminate the lease that the Company is reasonably certain to exercise. Lease expense is generally recognized on a straight-line basis over the lease term.
The Company has elected not to record leases with an initial term of 12 months or less on the balance sheets. Lease expense on such leases is recognized on a straight-line basis over the lease term.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 47)
What This Means (2025 FDD)
Based on the 2025 Crave Cookies FDD, the company follows specific accounting policies for leases, as outlined in Accounting Standards Codification (ASC) 842. Crave Cookies determines if an arrangement is a lease at the beginning of the agreement. Leases result in recognizing right-of-use (ROU) assets and lease liabilities on their balance sheets. ROU assets represent the right to use an asset for the lease term, while lease liabilities represent the obligation to make lease payments, measured on a discounted basis. Crave Cookies determines lease classification as operating or finance at the lease commencement date.
At the beginning of the lease, the lease liability is measured at the present value of the lease payments over the lease term. The ROU asset equals the lease liability, adjusted for any initial direct costs, prepaid or deferred rent, and lease incentives. Crave Cookies has chosen to use a risk-free rate, specifically the rate of a zero-coupon U.S. Treasury instrument, for the initial and ongoing measurement of all lease liabilities. The risk-free rate is determined using a period comparable with the lease term.
The lease term may include options to extend or terminate the lease if Crave Cookies is reasonably certain to exercise them. Lease expense is generally recognized on a straight-line basis over the lease term. However, Crave Cookies has elected not to record leases with an initial term of 12 months or less on the balance sheets. Lease expense on these short-term leases is recognized on a straight-line basis over the lease term.