Are receivables held by Itan subject to the guidance on accounting for credit losses?
Itan Franchise · 2025 FDDAnswer from 2025 FDD Document
on (FDIC) up to $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.
The Company follows Accounting Standards Update 2021-02 "Franchisors - Revenue from Contracts with Customers".
Source: Item 23 — RECEIPT (FDD pages 44–190)
What This Means (2025 FDD)
According to Itan's 2025 Franchise Disclosure Document, the receivables held by the company are subject to the guidance on accounting for credit losses. The document states that Itan follows standards applicable to accounting for credit losses, which replaces the incurred loss methodology with an expected loss methodology, also known as the current expected credit loss (CECL) methodology.
The CECL methodology is applicable to various types of receivables, including trading receivables, financing receivables, and receivables relating to repurchase agreements and securities lending agreements. It also applies to off-balance sheet credit exposures not accounted for as insurance, such as loan commitments and financial guarantees, as well as net investments in leases recognized by a lessor in accordance with Topic 842 on leases.
Itan adopted ASC 326 using a modified retrospective transition approach. Under this approach, an entity records an adjustment to retained earnings for the cumulative effect of adopting the standard. The adjustment is made to opening retained earnings as of the start of the reporting period in which the ASU becomes effective. Itan performed a review of the new guidance as compared to its current accounting policies to determine the impact of this standard on their financial assets presentation and determined that there is no material impact to their financial assets presentation upon adoption of the new standard. As of December 31, 2024 and 2023, Itan had no allowances for credit losses.