How are ROU assets measured 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' 2025 Franchise Disclosure Document, ROU (Right-of-Use) assets, which represent the right to use an underlying asset for the lease term, are initially measured based on the lease liability, adjusted for certain items. The lease liability itself is measured at the present value of the lease payments over the lease term.
Specifically, the ROU asset equals the lease liability with adjustments made for any initial direct costs, prepaid or deferred rent, and lease incentives. This means that when Crave Cookies determines the value of the ROU asset, they start with the present value of the lease payments and then add any costs directly related to setting up the lease. They also account for any rent that was paid in advance or delayed, as well as any incentives they received from the lessor.
Crave Cookies has elected to use a risk-free rate, based on a zero-coupon U.S. Treasury instrument, for measuring all lease liabilities, both initially and in subsequent measurements. This risk-free rate is determined using a period comparable with the lease term. Additionally, Crave Cookies does not record leases with an initial term of 12 months or less on their balance sheets, instead recognizing the lease expense on a straight-line basis over the lease term. This accounting approach impacts how Crave Cookies reports its financial obligations and assets related to leases, providing a standardized method for reflecting lease agreements on their balance sheet.