How does Crave Cookies recognize lease expense generally?

According to Crave Cookies' 2025 Franchise Disclosure Document, the company generally recognizes lease expenses on a straight-line basis over the lease term. This means that the total lease expense is divided evenly over the duration of the lease, resulting in a consistent expense amount each period. However, Crave Cookies has elected not to record leases with an initial term of 12 months or less on the balance sheets, but the lease expense on such short-term leases is still recognized on a straight-line basis over the lease term.

For leases longer than 12 months, at the commencement of the lease, Crave Cookies measures the lease liability at the present value of the lease payments over the lease term. The right-of-use (ROU) asset is then calculated as the lease liability, adjusted 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 the initial and subsequent measurement of all lease liabilities. This risk-free rate is determined using a period comparable with the lease term.

This accounting policy impacts potential Crave Cookies franchisees by providing a predictable lease expense over the life of the lease, which can aid in financial planning and budgeting. The use of a straight-line basis for expense recognition simplifies the accounting process. However, franchisees should be aware of how Crave Cookies calculates the initial lease liability and ROU asset, particularly the use of a risk-free rate and any adjustments for direct costs or incentives, as these factors can affect the reported amounts on the balance sheet. Franchisees should also note that short-term leases (12 months or less) are treated differently, although the expense recognition remains on a straight-line basis.