What do Face Foundrie's lease liabilities represent?
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's lease liabilities represent the obligation to make lease payments arising from leases. These liabilities are connected to right of use (ROU) assets, which are recognized as an offset when the lease begins. The ROU assets and lease liabilities are determined at the start of the lease 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 to determine the present value of lease payments. This rate is based on available information at the commencement date. Renewal options are included in the minimum lease terms only if they are reasonably certain to be exercised. Rent expenses for 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 ROU assets and lease liabilities for short-term leases, which are those with a term of 12 months or less at commencement, provided that renewal options are not reasonably certain to be exercised. These short-term leases are recognized on a straight-line basis over the lease term. As of December 31, 2024, the operating lease liability was $58,952 for the current portion and $284,843 for the non-current portion, totaling $343,795. For the year ended December 31, 2025, the rent payments are projected to be $58,952, with total lease payments amounting to $438,267, less imputed interest of $94,473, resulting in a present value of the lease liability of $343,795.