What accounting standard regarding leases did Golden Krust Caribbean Restaurant adopt?
Golden_Krust_Caribbean_Restaurant Franchise · 2024 FDDAnswer from 2024 FDD Document
In February 2016, the FASB issued ASU 2016-02, Leases ("ASC 842"). The standard increases transparency and comparability among organizations by requiring the recognition of right-of-use ("ROU") assets and lease liabilities on the balance sheet. Most prominent of the changes in the standard is the recognition of ROU assets and lease liabilities by lessees for those leases classified as operating leases.
The standard had a material impact on the consolidated balance sheets but did not have an impact on the consolidated statement of operations and comprehensive loss, nor statements of cash flows. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases.
The Company leases office space and a restaurant location and determines if an arrangement is a lease at inception. Operating leases are included in operating lease rightof-use (ROU) assets, other current lease liabilities and operating lease liabilities on the balance sheets. The Company does not have any finance leases as of December 31, 2023 and 2022.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 35)
What This Means (2024 FDD)
According to the 2024 Franchise Disclosure Document, Golden Krust Caribbean Restaurant adopted FASB ASU 2016-02, Leases ("ASC 842") in February 2016. This standard aims to enhance transparency and comparability among organizations by mandating the recognition of right-of-use (ROU) assets and lease liabilities on the balance sheet. The most significant change is the recognition of ROU assets and lease liabilities by lessees for leases classified as operating leases.
For Golden Krust Caribbean Restaurant, the adoption of this standard had a material impact on the consolidated balance sheets, primarily through the recognition of ROU assets and lease liabilities for operating leases. However, it did not affect the consolidated statement of operations and comprehensive loss, nor the statements of cash flows. As of December 31, 2023 and 2022, Golden Krust Caribbean Restaurant did not have any finance leases.
For a prospective franchisee, this means that when assessing Golden Krust Caribbean Restaurant's financial statements, it's important to understand how the company accounts for its leases under ASC 842. Franchisees should be aware that the balance sheet includes right-of-use assets and lease liabilities related to operating leases, such as office space and restaurant locations leased by the company. This accounting treatment provides a more comprehensive view of Golden Krust Caribbean Restaurant's financial obligations related to its lease agreements.