What rate does Crave Cookies use for the initial and subsequent measurement of all lease liabilities?
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 company 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 using a period comparable with the lease term.
For a prospective Crave Cookies franchisee, this means that when calculating the present value of lease payments for accounting purposes, Crave Cookies uses the rate associated with zero-coupon U.S. Treasury instruments that have a term similar to the lease. This approach simplifies the process of determining the discount rate, as it relies on a readily available and objective benchmark.
It is important to note that the lease term may include options to extend or terminate the lease if the company is reasonably certain to exercise those options. Additionally, Crave Cookies has elected not to record leases with an initial term of 12 months or less on the balance sheets, and the expense for these short-term leases is recognized on a straight-line basis over the lease term.