How does Crave Cookies classify leases?
Crave_Cookies Franchise · 2025 FDDAnswer from 2025 FDD Document
lities, end of year | $ 1,279,141 | $ 654,671 |
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.
Nature of Leases
The Company has entered into the following lease arrangements:
Operating Leases
The Company leased a vehicle that expired in 2023 and had monthly payments of $674.
In 2023, the Company entered into a new vehicle lease that expires in 2025 and has monthly payments of $576.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 47)
What This Means (2025 FDD)
According to Crave Cookies' 2025 Franchise Disclosure Document, the company classifies leases as either operating or finance leases. The determination is made at the lease commencement date. Crave Cookies recognizes right-of-use (ROU) assets and lease liabilities on their balance sheets for leases exceeding 12 months. These ROU assets represent the right to use an asset for the lease term, while lease liabilities represent the obligation to make lease payments. These liabilities are measured on a discounted basis.
At the beginning of the lease, the lease liability is calculated based on the present value of lease payments over the lease term. The ROU asset is then determined by adjusting the lease liability for any initial direct costs, prepaid or deferred rent, and lease incentives. Crave Cookies uses a risk-free rate, specifically the rate of a zero-coupon U.S. Treasury instrument, for measuring all lease liabilities. This rate is determined using a period comparable to the lease term. The lease term may include options to extend or terminate the lease if the company is reasonably certain to exercise those options. Lease expenses are generally recognized on a straight-line basis over the lease term.
Notably, Crave Cookies has a policy of not recording leases with an initial term of 12 months or less on their balance sheets. For these short-term leases, the lease expense is recognized on a straight-line basis over the lease term. The company has entered into operating leases, including vehicle leases with monthly payments. For example, in 2023, they entered into a new vehicle lease that expires in 2025 with monthly payments of $576. Termination of this lease is generally prohibited unless there is a violation of the lease agreement.