Does Golden Krust Caribbean Restaurant charge interest on liabilities to related parties?
Golden_Krust_Caribbean_Restaurant Franchise · 2024 FDDAnswer from 2024 FDD Document
ted statements of operations, were $142,186 and $145,391 during 2023 and 2022, respectively.
During 2023 and 2022, Bakery sales to the Company-owned restaurants aggregated approximately $605,000 and $922,000, respectively.
The Company also entered into an agreement with Bakery, whereby any related party receivables or payables will accrue interest at a rate of 1% per annum on any balances between the two companies. At December 31, 2023 and 2022, there were amounts due between the two companies of $75,031 and $4,657,186, respectively. Interest on these balances, charged to interest expense in the statements of operations totaled $7,630 and $44,615 for 2023 and 2022, respectively.
In November 2023, the Company agreed to pay Bakery $5,180,961 through a promissory note. The note has a term of 84 months and will mature on October 31, 2029. For the first 36 months, the Company will pay a monthly installment of $87,354, which includes 10.5% interest. After 36 months, the monthly installment will be adjusted based on the remaining balance of the note based on prevailing rates.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 35)
What This Means (2024 FDD)
According to Golden Krust Caribbean Restaurant's 2024 Franchise Disclosure Document, the company's policy on charging interest on liabilities to related parties varies depending on the specific relationship and the nature of the liabilities.
For balances between Golden Krust Franchising, Inc. and Golden Krust Caribbean Bakery, Inc., any related party receivables or payables accrue interest at a rate of 1% per annum. In 2023, Golden Krust Franchising, Inc. agreed to pay Golden Krust Caribbean Bakery, Inc. $5,180,961 through a promissory note. This note has an 84-month term maturing on October 31, 2029, with initial monthly installments of $87,354, including 10.5% interest for the first 36 months. After this period, the monthly installment will be adjusted based on the remaining balance and prevailing rates.
However, for balances due to or from other related parties, primarily real estate holdings under common ownership/management, no interest is charged on these liabilities. These amounts mainly consist of interest-bearing advances for working capital, lease payments, and allocation of operating expenses. Because there are no scheduled repayment requirements, these balances are classified as noncurrent assets and long-term liabilities on the balance sheets.