Which ASU does Itan follow regarding 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, 2024 and 2023.
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 ASU 2016-02, Leases (Topic 842), including all related amendments, for its lease accounting. This standard employs a right-of-use (ROU) model, which requires Itan, as the lessee, to recognize a ROU asset and a lease liability on its balance sheet for all leases extending beyond 12 months. The company must also disclose significant details about its leasing arrangements. Renewal options are factored into the lease term only if they are reasonably certain to be exercised.
Under this standard, Itan classifies leases as either finance or operating leases. Operating lease liabilities and their corresponding ROU assets are initially 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 document specifies that Itan had no finance leases as of December 31, 2024, and December 31, 2023. This information is crucial for prospective franchisees as it provides insight into how Itan accounts for its leases, which can impact its financial statements and overall financial health. Understanding these accounting practices helps potential franchisees assess the financial stability and transparency of the franchisor.