According to Itan's accounting policies, what is the treatment of leases?
Itan Franchise · 2025 FDDAnswer from 2025 FDD Document
Leases – The Company follows ASU 2016-02, Leases (Topic 842) and all related amendments. The standard established a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months and disclose key information about the leasing arrangements. Options to renew a lease are only included in the lease term to the extent those options are reasonably certain to be exercised. Leases will be classified as either finance or operating. Operating lease liabilities and their corresponding ROU assets are initially recorded based on the present value of lease payments over the term of the lease. The rate implicit in lease contracts is typically not readily determinable and, as a result, the Company utilizes the treasury yield rate to discount lease payments. Finance leases are generally those leases that allow the Company to substantially utilize or pay for the entire asset of its estimated life. The Company had no finance leases at December 31, 2023 and 2022.
Source: Item 23 — RECEIPT (FDD pages 44–190)
What This Means (2025 FDD)
According to Itan's 2025 Franchise Disclosure Document, the company adheres to Accounting Standards Update 2016-02, Leases (Topic 842), including all related amendments. This standard employs a right-of-use (ROU) model, which mandates that Itan, as a lessee, must acknowledge a ROU asset and lease liability on its balance sheet for all leases exceeding a 12-month term. Additionally, Itan is required to disclose significant details regarding its leasing arrangements. Lease renewal options are factored into the lease term only if their exercise is reasonably certain.
Itan classifies leases as either finance or operating leases. Operating lease liabilities and their corresponding ROU assets are initially valued and recorded based on the present value of lease payments over the lease term. Because the rate implicit in lease contracts is typically not readily determinable, Itan uses the treasury yield rate to discount lease payments. Finance leases are defined as those that allow Itan to substantially utilize or pay for the entire asset over its estimated life.
The FDD indicates that Itan had no finance leases as of December 31, 2024 and 2023. This accounting treatment is standard under GAAP, ensuring that companies transparently represent their lease obligations and assets on their financial statements. For a prospective Itan franchisee, this means understanding how lease obligations will impact their own balance sheet and financial reporting, particularly given the distinction between operating and finance leases.