What was the impact of adopting ASC 842, Leases, on the retained earnings of Kidokinetics?
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 company adopted ASC 842, Leases, as of January 1, 2022, using the modified retrospective method. This accounting standard relates to how companies account for leases on their financial statements. Kidokinetics has an operating lease for office space from a related party, which necessitated adjustments to record the right-of-use asset and lease liability upon implementation.
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 these adjustments on the company's retained earnings was a decrease of $1,015. This decrease reflects the initial impact of recognizing the lease asset and liability on the balance sheet.
It's important to note that the lease liability represents the present value of Kidokinetics' estimated future minimum lease payments over the lease term, discounted using a collateralized incremental borrowing rate. The FDD states that the impact of ASC 842 is non-cash in nature and does not affect the company's cash flows, meaning it's an accounting adjustment rather than an actual outflow of money. For a prospective franchisee, this indicates that Kidokinetics' financial statements reflect a standardized approach to lease accounting, which can help in comparing its financial health with other franchises.