At lease commencement, how is the lease liability measured for Crave Cookies?
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' 2025 Franchise Disclosure Document, at the commencement of a lease, the lease liability is measured by calculating the present value of the lease payments that will be made over the lease term. The right-of-use (ROU) asset is then determined by adjusting the lease liability to account for any initial direct costs, prepaid or deferred rent, and any lease incentives received.
Crave Cookies has elected to use a risk-free rate, specifically the rate of a zero-coupon U.S. Treasury instrument, for both the initial and subsequent measurement of all lease liabilities. This risk-free rate is determined based on a period comparable to the lease term. This approach simplifies the accounting process and provides a consistent method for valuing lease liabilities.
The lease term may include options to extend or terminate the lease, but only if Crave Cookies is reasonably certain to exercise these options. Lease expenses are generally recognized on a straight-line basis over the lease term, meaning the expense is evenly distributed throughout the lease period. However, Crave Cookies has chosen not to record leases with an initial term of 12 months or less on their balance sheets, and the expense for these short-term leases is recognized on a straight-line basis over the lease term.