How are operating and finance lease ROU assets and liabilities recognized by Crepe De Licious?
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.
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 recognizes operating and finance lease Right-of-Use (ROU) assets and liabilities at the lease commencement date. This recognition is based on the present value of lease payments expected over the lease term.
To determine the present value, Crepe De Licious uses the rate implicit in the lease, if available. However, the document states that most operating leases do not provide an implicit rate. In such cases, Crepe De Licious uses a risk-free rate based on information available at the lease commencement date. This risk-free rate is derived from rates published by the U.S. Department of the Treasury for periods matching the lease length.
The company's lease terms may include options to extend or terminate the lease. These options are considered in the calculation of the ROU asset and lease liability only when it is reasonably certain that Crepe De Licious will exercise the option. The lease expense for these lease payments is recognized on a straight-line basis over the lease term.