How does Focus Cfo recognize rent expense for its office space lease?
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, modifying lease accounting for lessees by requiring the recognition of a lease liability and a right-of-use asset for all leases, excluding short-term leases. Focus Cfo adopted this standard using the modified retrospective transition method, without restating prior period balances or adjusting the opening balance of retained earnings.
Focus Cfo commenced a lease for office space on December 31, 2022, which required recording a right-of-use asset and a related liability of $94,340. This reflects the economic value of an operating lease for office space. The company used an incremental borrowing rate of 7.50% at the time of lease inception to estimate the economic value.
The lease includes two months of zero rent, followed by monthly payments ranging from $1,935 to $1,993 through December 2027. Focus Cfo recognizes rent expense on a straight-line basis, including payments for extension periods likely to be exercised. The lease allows for three extension periods of two years each, but these periods are not included in the calculation of the right-of-use asset and liability because management cannot predict if they will be exercised. For 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.