Note 7 Lease Liability

On January 1, 2022, we adopted ASC Topic 842 – Leases. Under this new guidance, lessees are required to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases. As of September 30, 2022 and 2021 the company recorded its ROU lease liabilities of $135,462 and $0, respectively.

Lessee accounting

We determine if an arrangement is or contains a lease at inception. Our assessment is based on (1) whether the contract involves the use of a distinct identified asset, (2) whether we obtain the right to substantially all the economic benefit from the use of the asset throughout the period and (3) whether we have the right to direct the use of the asset. Leases are classified as either finance leases or operating leases. A lease is classified as a finance lease if any one of the following criteria are met: the lease transfers ownership of the asset by the end of the lease term, the lease contains an option to purchase the asset that is reasonably certain to be exercised, the lease term is for the majority of the remaining useful life of the asset or the present value of the lease payments equals or exceeds substantially all of the fair value of the asset. A lease is classified as an operating lease if it does not meet any one of these criteria. The lease classification affects the expense recognition in the income statement. Operating lease costs are recorded entirely in operating expenses. Finance lease costs are split, where amortization of the ROU asset is recorded in operating expenses and an implied interest component is recorded in interest expense.

Under the guidance of ASC 842, operating leases are included in right-of-use assets, current lease liabilities, and noncurrent lease liabilities on our balance sheets. ROU assets and lease liabilities are recognized at commencement date based on the present value of the future minimum lease payments over the lease term. As most of our leases do not provide an implicit interest rate, we use our incremental borrowing rate based on the information available at transition date in determining the present value of future payments. The ROU asset includes any lease payments made but excludes lease incentives and initial direct costs incurred, if any. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

Lease extensions

Many leases have options to either extend or terminate the lease. In determining the lease term, we considered all available contract extensions that are reasonably certain of occurring.

Operating leases

The Company has three operating leases, each with different terms. Lease 1 entered into on July 23, 2020 is effective for 3 years and 1 month from the commencement date. The lease requires adjustment upon the annual commencement date with an increase to the monthly rent by 3%. Lease 2 entered into on February 24, 2021 is effective for 3 years and 1 month from the commencement date. The lease requires monthly increases until the monthly amount reaches $5,000, then a 3% annual increase thereafter. Upon notice, the lease can be renewed for an additional two-year term at a rate 5% higher than set on schedule A of the lease. Lease 3 entered into on April 22, 2021 is effective for 3 years and 1 month from the commencement date. The lease may be renewed with renewal options to be determined at that time.

The following table summarizes balance sheet data related to leases at September 30, 2022 and September 30, 2021:

 Schedule of Balance Sheet Related To Leases

Operating lease liability is presented net of lease payments. The Company is required to make monthly payments for each lease. During the fiscal year ended September 30, 2022, the Company paid $44,101 towards the lease liability and $8,080 in interest expense.