What accounting standard update (ASU) regarding leases did Crave Cookies adopt in 2022?
Crave_Cookies Franchise · 2025 FDDAnswer from 2025 FDD Document
cial Statements December 31, 2022 and 2021
Note 3: Operating Leases – ASC 842
Change in Accounting Principle
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This ASU requires lessees to recognize a lease liability and a right-of-use (ROU) asset on a discounted basis, for substantially all leases, as well as additional disclosures regarding leasing arrangements. Disclosures are required to enable users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which provides an optional transition method of applying the new lease standard. Topic 842 can be applied using either a modified retrospective approach at the beginning of the earliest period presented or, as permitted by ASU 2018-11, at the beginning of the period in which it is adopted, i.e., the comparatives under ASC 840 option.
The Company adopted Topic 842 on January 1, 2022 (the effective date) using the comparatives under ASC 840 transition method, which applies Topic 842 at the beginning of the period in which it is adopted. Prior period amounts have not been adjusted in connection with the adoption of this standard. The Company elected the package of practical expedients under the new standard, which permits entities to not reassess lease classification, lease identification or initial direct costs for existing or expired leases prior to the effective date. The Company elected the practical expedient to account for nonlease components and the lease components to which they relate as a single lease component for all. Also, the Company elected to keep short-term leases with an initial term of 12 months or less off the balance sheets. The Company did not elect the hindsight practical expedient in determining the lease term for existing leases as of January 1, 2022.
The most significant impact of adoption was the recognition of operating lease ROU assets and operating lease
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 47)
What This Means (2025 FDD)
According to Crave Cookies's 2025 Franchise Disclosure Document, the company adopted Topic 842 on January 1, 2022, concerning leases. This update, issued as ASU 2016-02, requires Crave Cookies to recognize a lease liability and a right-of-use (ROU) asset on a discounted basis for substantially all leases. The company used the comparatives under ASC 840 transition method, applying Topic 842 at the beginning of the adoption period, without adjusting prior period amounts.
Crave Cookies elected certain practical expedients under the new standard, including not reassessing lease classification, lease identification, or initial direct costs for existing or expired leases before the effective date. They also chose to account for nonlease components and related lease components as a single unit and to keep short-term leases (12 months or less) off the balance sheets. However, Crave Cookies did not elect the hindsight practical expedient in determining the lease term for existing leases as of January 1, 2022.
The adoption of Topic 842 led to the recognition of operating lease ROU assets and operating lease liabilities of $11,758. However, the standard did not significantly impact the company's statements of operations or cash flows. For a prospective franchisee, this means that Crave Cookies's financial statements now reflect lease obligations more transparently, which could be relevant when assessing the company's financial health and stability.