What components are used to calculate the Right-of-Use (ROU) asset for Crave Cookies leases?
Crave_Cookies Franchise · 2025 FDDAnswer from 2025 FDD Document
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)
According to Crave Cookies's 2025 Franchise Disclosure Document, the Right-of-Use (ROU) asset, which represents the right to use an underlying asset for the lease term, is calculated based on several components. The initial calculation begins with the lease liability, which is the present value of lease payments over the lease term. This lease liability is then adjusted to arrive at the ROU asset value.
The specific adjustments to the lease liability include any initial direct costs incurred by Crave Cookies, prepaid or deferred rent, and any lease incentives received. These adjustments ensure that the ROU asset accurately reflects the economic value of the leased asset to Crave Cookies. The company uses a risk-free rate, specifically the rate of a zero-coupon U.S. Treasury instrument, for measuring all lease liabilities, ensuring consistency and objectivity in their financial reporting.
It is important to note that 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. This accounting treatment simplifies the financial reporting for short-term leases, as they do not require the recognition of ROU assets and lease liabilities.