How are ROU assets determined for Surestay Hotel By Best Western leases?
Surestay_Hotel_By_Best_Western Franchise · 2025 FDDAnswer from 2025 FDD Document
(m) Leases
The Company primarily leases office space, vehicles, and office equipment from third parties. The Company determines if a contract is a lease at inception. A contract contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The lease term begins on the commencement date, which is the date the Company takes possession of the asset and may include options to extend or terminate the lease when it is reasonably certain that the option will be exercised. Certain of the Company's leases contain renewal options for varying periods, which can be exercised at the Company's sole discretion. Leases are classified as operating or finance leases based on factors such as the lease term, lease payments, and the economic life, fair value and estimated residual value of the asset. Where leases include options to purchase the leased asset at the end of the lease term, this is assessed as a part of the Company's lease classification determination.
Under Accounting Standards Codification ("ASC") Leases ("ASC 842"), the Company recognizes a right-of-use ("ROU") asset and lease liability to account for its operating leases. ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized on the commencement date based on the present value of lease payments over the lease term. ROU assets are based on the lease liability (which represents the present value of remaining lease payments) and are increased by prepaid lease payments and decreased by lease incentives received. Lease incentives are amortized through the lease asset as reductions of expense over the lease term. For leases where the Company is reasonably certain to exercise a renewal option, such option periods ha
Source: Item 23 — Receipts (FDD pages 88–286)
What This Means (2025 FDD)
According to Surestay Hotel By Best Western's 2025 Franchise Disclosure Document, the company recognizes a right-of-use (ROU) asset and lease liability for its operating leases, following Accounting Standards Codification (ASC) 842. This standard was adopted as of December 1, 2022. ROU assets represent Surestay Hotel By Best Western's right to use an underlying asset for the lease term, while lease liabilities represent the obligation to make lease payments arising from the lease. These assets primarily consist of leased office space, vehicles, and office equipment from third parties.
ROU assets and lease liabilities are recognized on the date the lease commences, based on the present value of lease payments over the lease term. The determination of the lease term may include options to extend or terminate the lease if it is reasonably certain that the option will be exercised. The ROU assets are based on the lease liability, which represents the present value of remaining lease payments, and are increased by prepaid lease payments and decreased by lease incentives received.
Lease incentives are amortized through the lease asset as reductions of expense over the lease term. For leases where Surestay Hotel By Best Western is reasonably certain to exercise a renewal option, these option periods are included in determining the company's ROU assets and lease liabilities. The classification of leases as operating or finance leases depends on factors such as the lease term, lease payments, and the economic life, fair value, and estimated residual value of the asset. Options to purchase the leased asset at the end of the lease term are also considered in the lease classification determination.