What accounting standard did Focus Cfo adopt regarding leases?
Focus_Cfo Franchise · 2025 FDDAnswer from 2025 FDD Document
ensees, subject to policy limits.
The Company may rely on resources from the Majority Owner to support operations and the Majority Owner has committed to continue to provide financial support to the Company sufficient for the Company as needed.
LEASES
The Company adopted ASU No. 2016-02, and additional ASUs issued to clarify and update the guidance in ASU 2016-02. This standard modifies lease accounting for lessees to increase transparency and comparability by requiring the recognition of a lease liability and a right-of-use asset for all leases (with the exception of short-term leases). The Company adopted the new leases standard utilizing the modified retrospective transition method, under which prior period balances were not restated and no adjustment to the opening balance of retained earnings was recognized. There were no leases requiring adjustment as of the date of adoption. The Company entered into its current lease agreement during 2022.
On December 31, 2022, the Company commenced a lease for office space which required the recording of a right of use asset and a related liability of $94,340 to reflect the economic value of an operating lease for office space. The Company used its incremental borrowing rate at the time of lease inception of 7.50% to estimate the economic value. The lease includes two months of zero rent and then monthly payments ranging from $1,935 to $1,993 through maturity in December 2027. Rent expense is recognized on the straight-line basis of all lease payments including those for extension periods that are likely to be exercised. The lease allows for three extension periods of two years each. Management is not currently able to predict if any of those terms will be exercised and therefore, have not included those periods in the calculation of th
Source: Item 23 — Receipts (FDD pages 37–126)
What This Means (2025 FDD)
According to Focus Cfo's 2025 Franchise Disclosure Document, the company adopted ASU No. 2016-02, along with additional ASUs issued to clarify and update the guidance in ASU 2016-02, to modify lease accounting. This standard aims to enhance transparency and comparability by mandating the recognition of a lease liability and a right-of-use asset for all leases, with the exception of short-term leases.
Focus Cfo implemented the new leases standard using the modified retrospective transition method, meaning prior period balances were not restated, and no adjustments were made to the opening balance of retained earnings. As of the adoption date, there were no leases that required adjustment. However, in 2022, Focus Cfo entered into a lease for office space, which necessitated recording a right-of-use asset and a related liability of $94,340 to reflect the economic value of the operating lease. The company used an incremental borrowing rate of 7.50% at the time of the lease inception to estimate the economic value.
The lease terms include two months of zero rent, followed by monthly payments ranging from $1,935 to $1,993 until its maturity in December 2027. Focus Cfo recognizes rent expense on a straight-line basis, considering all lease payments, including those for extension periods that are likely to be exercised. The lease agreement allows for three extension periods of two years each. As of now, management cannot predict whether these extension terms will be exercised, so these periods have not been included in the calculation of the right-of-use asset and liability. For the year 2024, there was no accumulated depreciation related to the right-of-use asset. The current portion of the right-of-use liability was $19,782 and was included in other current liabilities on the combined balance sheets.
For a prospective franchisee, this means Focus Cfo adheres to specific accounting standards for leases, which could impact how their own franchise's financial statements are prepared and interpreted. Understanding these standards is crucial for accurately assessing the financial obligations and assets related to any leased properties or equipment used in the franchise operation. Franchisees should consult with financial professionals to fully grasp the implications of these accounting standards on their business.