What is the name of the methodology that Itan uses for measuring expected credit losses?
Itan Franchise · 2025 FDDAnswer from 2025 FDD Document
$250,000 per bank as of December 31, 2024 and 2023. The Company had $0 and $104,387 that were in excess of the FDIC limit as of December 31, 2024 and 2023, respectively. Management believes that the Company is not exposed to any significant credit risk with respect to its cash.
Accounts receivable - Accounts receivable consist mainly of monthly royalties and marketing funds due according to franchise agreements. Management assesses the collectability of accounts receivable at the close of each period and records an allowance for doubtful accounts based on specific identification. Management has determined all accounts to be collectible at December 31, 2024 and 2023.
Credit losses - The Company follows standards applicable to accounting for credit losses, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (CECL) methodology. The measurement of expected credit losses under the CECL methodology is applicable to trading receivables, financing receivables, held-to-maturity debt securities, and receivables relating to repurchase agreements and securities lending agreements. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized
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by a lessor in accordance with Topic 842 on leases. Receivables held by the Company are subject to this guidance. At December 31, 2024 and 2023 the Company had no allowances for credit losses.
Property and equipment - Property and equipment are carried at cost. Depreciation is computed using the straight-line method of depreciation over the assets estimated useful lives of five years. Maintenance and repairs are charged to the expense as incurred; major renewals and betterments are capitalized. When items of property and equipment are sold or retired, the related cost and accumulated depreciation are removed from the accounts, and any gain or loss is included in income.
The Company follows Accounting Standards Update No. 2014-09, 2016-08, 2016-10, 2016-12 and 2016-20, collectively implemented as FASB Accounting Standards Codification ("ASC") Topic 606 ("ASC 606") Revenue from Contracts with Customers, provides guidance for revenue recognition. This ASC's core principle requires a company to recognize revenue when it transfers promised goods or services to customers in an amount that reflects consideration to which the company expects to be entitled in exchange for those goods or services.
Source: Item 23 — RECEIPT (FDD pages 44–190)
What This Means (2025 FDD)
According to Itan's 2025 Franchise Disclosure Document, the company uses the current expected credit loss (CECL) methodology to measure expected credit losses. This methodology is an expected loss methodology that replaced the incurred loss methodology.
The CECL methodology applies to various financial instruments and agreements, including trading receivables, financing receivables, held-to-maturity debt securities, receivables relating to repurchase agreements and securities lending agreements. It also extends to off-balance sheet credit exposures not accounted for as insurance, such as loan commitments, standby letters of credit, financial guarantees, and other similar instruments, as well as net investments in leases recognized by a lessor in accordance with Topic 842 on leases. The receivables held by Itan are subject to this guidance.
Itan adopted Topic 326, which includes the CECL methodology, using a modified retrospective transition approach. This approach involves recording an adjustment to retained earnings for the cumulative effect of adopting the standard, made to opening retained earnings at the start of the reporting period when the ASU becomes effective. Upon reviewing the new guidance compared to its current accounting policies, Itan determined that there was no material impact on their financial assets presentation upon adoption of the new standard.