How does Face Foundrie determine if an arrangement is a lease?
Face_Foundrie Franchise · 2025 FDDAnswer from 2025 FDD Document
For lease agreements entered into subsequent to the adoption of ASC 842, the Company determines if an arrangement is a lease at inception. The Company's lease liabilities represent the obligation to make lease payments arising from the leases and right of use ("ROU") assets are recognized as an offset at lease inception. ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As the Company's leases typically do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. If the Company's leases include options to extend the lease, the renewal options are not included in the minimum lease terms unless they are reasonably certain to be exercised. Rent expense for lease payments related to operating leases is recognized on a straight-line basis over the lease term and is included in general and administrative expenses in the statements of operations.
The Company has made an accounting policy election not to recognize right-of-use assets and lease liabilities that arise from any short-term leases. All leases with a term of 12 months or less at commencement, for which the Company is not reasonably certain to exercise available renewal options or to enter into new leases that would extend the lease term past 12 months, will be recognized on a straight-line basis over the lease term.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 73)
What This Means (2025 FDD)
According to Face Foundrie's 2025 Franchise Disclosure Document, the company determines if an arrangement is a lease at its inception for lease agreements entered into after adopting ASC 842. Face Foundrie's lease liabilities are the obligations to make lease payments arising from the leases. Right of use assets are recognized as an offset at the lease inception. These assets and liabilities are based on the present value of lease payments over the lease term.
Since Face Foundrie's leases typically do not provide an implicit rate, the company uses its incremental borrowing rate based on available information at the commencement date to determine the present value of lease payments. If the leases include options to extend, these renewal options are not included in the minimum lease terms unless they are reasonably certain to be exercised. Rent expenses for lease payments related to operating leases are recognized on a straight-line basis over the lease term and are included in general and administrative expenses in the statements of operations.
Face Foundrie has chosen not to recognize right-of-use assets and lease liabilities that arise from short-term leases. All leases with a term of 12 months or less at commencement, for which the company is not reasonably certain to exercise available renewal options or to enter into new leases that would extend the lease term past 12 months, will be recognized on a straight-line basis over the lease term. This accounting policy election simplifies the financial reporting for short-term leases, as they are treated as regular rental expenses rather than capitalized assets and liabilities.