What accounting standard does Surestay Hotel By Best Western use for leases, and when was it adopted?
Surestay_Hotel_By_Best_Western Franchise · 2025 FDDAnswer from 2025 FDD Document
On December 1, 2022, the Company adopted ASU 2016-02, "Leases (Topic 842)," using the modified retrospective approach. This pronouncement requires lessees to recognize a lease liability and a right-of-use asset for each lease with a term longer than twelve months and adds new presentation and disclosure requirements for both lessees and lessors. The recognized liability is measured at the present value of lease payments not yet paid, and the corresponding asset represents the lessee's right to use the underlying asset over the lease term and is based on the liability, subject to certain adjustments. For purposes of the the consolidated financial statements, the standard retains the dual model with leases classified as either operating or finance leases. Operating leases will result in straight-line expense while finance leases will result in a front-loaded expense pattern. The accounting guidance for lessors remains largely unchanged.
Source: Item 23 — Receipts (FDD pages 88–286)
What This Means (2025 FDD)
According to the 2025 FDD, Surestay Hotel By Best Western adopted ASU 2016-02, "Leases (Topic 842)," on December 1, 2022, using a modified retrospective approach. This accounting standards update requires Surestay Hotel By Best Western franchisees, as lessees, to recognize a lease liability and a right-of-use asset for leases exceeding twelve months. It also introduces new presentation and disclosure requirements for both lessees and lessors.
The lease liability is measured at the present value of lease payments not yet paid, while the right-of-use asset represents the franchisee's right to use the underlying asset over the lease term. The asset's value is based on the liability, with certain adjustments. For financial statement purposes, the standard maintains a dual model, classifying leases as either operating or finance leases. Operating leases result in straight-line expense, whereas finance leases result in a front-loaded expense pattern.
For a prospective Surestay Hotel By Best Western franchisee, this means that any property leases they enter into for longer than a year will need to be accounted for on the balance sheet as both an asset and a liability. This can impact the franchisee's financial ratios and reported profitability, depending on whether the lease is classified as operating or finance. The accounting for lessors remains largely unchanged, so the impact primarily affects how franchisees report their lease obligations.