How does Deka Lash classify leases under the Financial Accounting Standards Board's guidelines?
Deka_Lash Franchise · 2024 FDDAnswer from 2024 FDD Document
The Company recognizes leases following Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02, "Leases (Topic 842)". This ASU requires that a lease liability and related right-of-use asset representing the lessee's right to use or control the asset be recorded on the statement of financial position upon the commencement of all leases except for short-term leases. Leases will be classified as either finance leases or operating leases, which are substantially similar to the classification criteria for distinguishing between capital leases and operating in existing lease accounting guidance. As of December 31, 2023, the Company has two short-term leases they are currently not planning to be in effect as of December 31, 2024.
Source: Item 23 — RECEIPT (FDD pages 63–234)
What This Means (2024 FDD)
According to the 2024 FDD, Deka Lash adheres to Financial Accounting Standards Board (FASB) guidelines for lease accounting. Specifically, they follow Accounting Standards Update (ASU) No. 2016-02, "Leases (Topic 842)". This standard necessitates that Deka Lash record a lease liability and a corresponding right-of-use asset on their financial statements for all leases, except those classified as short-term. This means that when Deka Lash enters into a lease agreement, they recognize both their obligation to make lease payments (the liability) and their right to use the leased asset (the asset) on their balance sheet.
Under these guidelines, Deka Lash classifies leases as either finance leases or operating leases. The classification criteria used to distinguish between these two types of leases are substantially similar to the criteria used to differentiate between capital leases and operating leases under previous accounting standards. As of December 31, 2023, Deka Lash reported having two short-term leases, which they did not anticipate being in effect as of December 31, 2024.
For a prospective Deka Lash franchisee, understanding these accounting policies is important because it provides insight into how the company manages its lease obligations and assets. While this information pertains to Deka Lash's accounting practices as a company, it does not detail the lease obligations or classifications that a franchisee might encounter when securing a location for their own Deka Lash studio. Franchisees should consult with their own financial advisors to understand the lease accounting implications specific to their individual franchise agreements and circumstances.