How does Monicals Pizza account for leases with an original term of 12 months or less?
Monicals_Pizza Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company elected not to apply the recognition requirements to all leases with an original term of 12 months or less, for which the Company is not likely to exercise a renewal option or purchase the asset at the end of the lease; rather, short term leases will continue to be recorded on a straight-line basis over the lease term. Further, the Company has elected the policy not to separate lease and nonlease components for all asset classes.
Right-of-use assets are assessed for impairment in accordance with the Company's long-lived asset policy. The Company reassesses lease classification and remeasures right-of-use assets and lease liabilities when a lease is modified and that modification is not accounted for as a separate new lease or upon certain other events that require reassessment.
Additional required disclosures for Topic 842 are contained in Note 8.
Source: Item 23 — RECEIPTS (FDD pages 46–257)
What This Means (2025 FDD)
According to the 2025 Monicals Pizza Franchise Disclosure Document, the company has chosen not to apply specific recognition requirements to leases with original terms of 12 months or less. This applies when Monicals Pizza is unlikely to exercise a renewal option or purchase the asset at the end of the lease term.
Instead of applying more complex accounting standards, Monicals Pizza will continue to record these short-term leases on a straight-line basis over the lease term. This means the lease expense is recognized evenly throughout the duration of the lease, simplifying the accounting process for these short-term agreements.
Furthermore, Monicals Pizza has elected not to separate lease and nonlease components for all asset classes. The company assesses right-of-use assets for impairment according to its long-lived asset policy and will reassess lease classification and remeasure right-of-use assets and lease liabilities if a lease is modified and not accounted for as a separate new lease or upon certain other events that require reassessment. Additional disclosures related to Topic 842 can be found in Note 8 of the FDD.