Does the adoption of ASC 842 have an impact on Kidokinetics' cash flows?
Kidokinetics Franchise · 2024 FDDAnswer from 2024 FDD Document
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(i) Leasing
The Company adopted ASC 842, Leases, as of January 1, 2022, using the modified retrospective method. The Company has an operating lease for office space from a related party, which required adjustments to record the right-of-use asset and lease liability as of the date of implementation. Upon adoption, the Company recorded a right-of-use asset and lease liability of $134,828 and $135,843, respectively. The net effect on the Company's retained earnings was a decrease of $1,015. The lease liability reflects the present value of the Company's estimated future minimum lease payments over the lease term, discounted using a collateralized incremental borrowing rate. The impact of ASC 842 is non-cash in nature and does not affect the Co
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 59)
What This Means (2024 FDD)
According to Kidokinetics' 2024 Franchise Disclosure Document, the adoption of ASC 842, Leases, on January 1, 2022, did not affect the company's cash flows. Kidokinetics adopted ASC 842 using the modified retrospective method. This required adjustments to record the right-of-use asset and lease liability as of the implementation date due to an operating lease for office space from a related party.
Upon adopting ASC 842, Kidokinetics recorded a right-of-use asset of $134,828 and a lease liability of $135,843. The net effect of this adoption on the company's retained earnings was a decrease of $1,015. The lease liability is based on the present value of estimated future minimum lease payments over the lease term, discounted using a collateralized incremental borrowing rate.
For a prospective Kidokinetics franchisee, this accounting change primarily impacts how Kidokinetics reports its lease obligations on its balance sheet. It's important to note that while the adoption of ASC 842 did not affect Kidokinetics' cash flows, it did change the presentation of their financial statements by recognizing lease assets and liabilities that were previously off-balance sheet. This provides a more comprehensive view of the company's financial obligations related to leases.