How does Crepe De Licious determine if an arrangement is a lease?
Crepe_De_Licious Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company determines if an arrangement is a lease at inception based on the written terms and conditions of the agreement. Right-of-use (ROU) assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating and finance lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. When known, the Company uses rates implicit in the lease in determining the present value of lease payments. However, most operating leases do not provide an implicit rate. In these situations, the Company has elected to use a risk-free rate based on the information available at the lease commencement date in determining the present value of lease payments. The risk-free rate is determined from rates published by the U.S. Department of the Treasury for time periods consistent with the length of the applicable lease. The Company's lease terms may include options to extend or terminate the lease and these terms are only considered in the calculation of the ROU asset and lease liability when it is reasonably certain that the Company will exercise the particular option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
The Company has elected to apply the short-term lease exemption to all classes of underlying assets that qualify for the exemption. These leases consist of terms of twelve months or less and do not contain any options to purchase the underlying asset that the lessee is reasonably certain to exercise. In addition, the Company has elected the practical expedient to account for any lease arrangements with parties under common control based on the written terms and conditions of the lease.
For leases that contain both lease and non-lease components, the Company has elected to apply the practical expedient that allows for the components to be combined and accounted for as a single lease component. For arrangements accounted for as a single lease component, there may be variability in future lease payments as the amount of the non-lease components and non-components is typically revised from one period to the next. These variable lease payments, which are primarily comprised of real estate taxes, utilities, property insurance and excess mileage fees are recognized in operating expenses in the period in which the obligation for those payments was incurred.
Source: Item 23 — RECEIPTS (FDD pages 57–233)
What This Means (2025 FDD)
According to Crepe De Licious's 2025 Franchise Disclosure Document, the company determines whether an arrangement qualifies as a lease at the beginning, or inception, of the arrangement. This determination is based on the written terms and conditions outlined in the agreement.
Right-of-use (ROU) assets, which represent the right to use an asset during the lease term, and lease liabilities, which represent the obligation to make payments, are recognized on the date the lease begins. These are based on the present value of the lease payments over the lease term. Crepe De Licious uses the rate implicit in the lease to determine the present value of lease payments when this rate is known. However, because most operating leases do not include an implicit rate, Crepe De Licious uses a risk-free rate based on information available at the commencement date to determine the present value of lease payments. This risk-free rate is based on rates published by the U.S. Department of the Treasury for time periods matching the lease length.
Options to extend or terminate the lease are considered only if it is reasonably certain that Crepe De Licious will exercise them. Lease expenses are recognized on a straight-line basis over the lease term. Crepe De Licious applies a short-term lease exemption to leases with terms of twelve months or less that do not include options to purchase the underlying asset. Additionally, the company accounts for lease arrangements with parties under common control based on the written terms and conditions of the lease.
For leases containing both lease and non-lease components, Crepe De Licious combines these components and accounts for them as a single lease component. Variable lease payments, which include real estate taxes, utilities, property insurance, and excess mileage fees, are recognized as operating expenses in the period they are incurred.