How did the adoption of Topic 842 affect Crave Cookies' cash flows?
Crave_Cookies Franchise · 2025 FDDAnswer from 2025 FDD Document
ities, beginning of period | S | 330,419 | S | - | | Contract liabilities, end of period | S | 654,671 | S | 330,419 |
Notes to Financial 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' 2025 Franchise Disclosure Document, the adoption of Topic 842, which relates to leases, did not significantly affect the company's cash flows. Topic 842 requires lessees to recognize a lease liability and a right-of-use (ROU) asset on a discounted basis for substantially all leases, along with additional disclosures regarding leasing arrangements. The aim is to enable users of financial statements to better assess the amount, timing, and uncertainty of cash flows arising from leases.
Crave Cookies adopted Topic 842 on January 1, 2022, using the comparatives under the ASC 840 transition method, meaning they applied Topic 842 at the beginning of the period in which it was adopted and did not adjust prior period amounts. The company elected certain practical expedients under the new standard, such as not reassessing lease classification, lease identification, or initial direct costs for existing or expired leases before the effective date. They also elected to account for nonlease components and the related lease components as a single lease component and to keep short-term leases (with an initial term of 12 months or less) off the balance sheets.
The most significant impact of adopting Topic 842 for Crave Cookies was the recognition of operating lease ROU assets and operating lease liabilities of $11,758. However, the FDD states that this standard did not significantly affect the company's statements of operations or cash flows. This implies that while the balance sheet was affected by the recognition of these assets and liabilities, the actual cash inflows and outflows of the company were not materially impacted by the adoption of the new accounting standard.