For 360 Painting, are maintenance and repairs that do not extend the useful life of assets capitalized or expensed?
360_Painting Franchise · 2025 FDDAnswer from 2025 FDD Document
Property and equipment is stated at historical cost and depreciated using the straight-line method over the estimated useful life of the assets. Additions and betterments are capitalized, maintenance and repairs which do not extend the useful life of the assets are expensed as incurred in general and administrative expenses on the consolidated statements of operations.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 56)
What This Means (2025 FDD)
According to the 2025 FDD, 360 Painting expenses maintenance and repairs that do not extend the useful life of its assets. These expenses are recorded as incurred within general and administrative expenses on the company's consolidated statements of operations.
For a prospective 360 Painting franchisee, this accounting practice means that the costs of routine maintenance and repairs for items like equipment are fully deducted in the period they occur. This can help to reduce taxable income in the short term. However, it also means that franchisees will not be able to spread the cost of these expenses over multiple years through depreciation.
This treatment is a common accounting practice. Capitalizing costs is reserved for expenditures that significantly improve or extend the life of an asset. By expensing smaller maintenance and repair costs, 360 Painting aims to provide a clearer picture of its ongoing operational expenses in its financial statements.