How did Golden Krust Caribbean Restaurant apply the new lease accounting standard?
Golden_Krust_Caribbean_Restaurant Franchise · 2024 FDDAnswer from 2024 FDD Document
fter December 15, 2022. Earlier adoption is permitted subject to certain limitations. The Company is currently evaluating what the effect of adopting this pronouncement will have on its financial statements and related disclosures.
Adoption of New Accounting Standards:
In February 2016, the FASB issued ASU 2016-02, Leases ("ASC 842"). The new 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. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.
The Company adopted the requirements of the guidance effective January 1, 2022 and has elected to apply the provisions of this standard to the beginning of the period of adoption, through a cumulative effect adjustment, with certain practical expedients available. Lease disclosures for the year ended December 31, 2021 are made under prior lease guidance in FASB ASC 840.
The Company elected the available practical expedients to account for existing capital leases and operating leases as finance leases and operating leases, respectively, under the new guidance, without reassessing (a) whether the contracts contain leases under the new standard, (b) whether classification of capital leases or operating leases would be different in accordance with the new guidance, or (c) whether the unamortized initial direct costs before transition adjustments would have met the definition of initial direct costs in the new guidance at lease commencement. The company has also elected to separate non lease components from lease components.
As a result of the adoption of the new lease accounting guidance, the Company recognized on January 1, 2022 a lease liability of $701,148, which represents the present value of the remaining operating lease payments of $766,365, discounted using the applicable risk-free rates, and a right-of-use asset of $686,739.
The standard had a material
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 2022. This new standard increases transparency by requiring the recognition of right-of-use (ROU) assets and lease liabilities on the balance sheet, especially for operating leases.
Golden Krust Caribbean Restaurant applied the provisions of this standard starting January 1, 2022, through a cumulative effect adjustment, with certain practical expedients available. Lease disclosures for the year ended December 31, 2021, were made under prior lease guidance in FASB ASC 840. The company elected to account for existing capital and operating leases as finance and operating leases, respectively, without reassessing certain criteria. They also elected to separate non-lease components from lease components.
As a result of adopting the new lease accounting guidance, Golden Krust Caribbean Restaurant recognized a lease liability of $701,148 on January 1, 2022, representing the present value of remaining operating lease payments of $766,365, discounted using applicable risk-free rates, and a right-of-use asset of $686,739. The standard had a material impact on the consolidated balance sheets but did not impact 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.
For a prospective franchisee, this means that Golden Krust Caribbean Restaurant's financial statements now reflect lease obligations more transparently. Franchisees should be aware that the adoption of this standard primarily affects the balance sheet presentation of leases and not the overall profitability or cash flow of the company. Understanding these accounting changes can help franchisees better assess the financial health and obligations of Golden Krust Caribbean Restaurant.