How does Americas Best Value Inn amortize key money paid?
Americas_Best_Value_Inn Franchise · 2025 FDDAnswer from 2025 FDD Document
Other long term assets primarily consist of key money arrangements with certain of our franchisees and contract assets. We recognize key money paid in conjunction with entering into long-term franchise agreements as other long term assets on our consolidated balance sheets and amortize the amount paid as a reduction of revenue over the term of the franchise agreements. The portion of these costs that will be amortized over the following 12 months are classified as prepaid expenses and other current assets on our consolidated balance sheets.
Source: Item 21 — FINANCIAL STATEMENTS (FDD pages 70–71)
What This Means (2025 FDD)
According to the 2025 FDD, Americas Best Value Inn recognizes key money paid in conjunction with entering into long-term franchise agreements as other long term assets on its consolidated balance sheets. The brand amortizes the amount paid as a reduction of revenue over the term of the franchise agreements.
The portion of these costs that will be amortized over the following 12 months are classified as prepaid expenses and other current assets on their consolidated balance sheets. This means that the initial payment is treated as an asset and is gradually expensed over the life of the agreement, reflecting the benefit received each year. The short-term portion is then categorized as a prepaid expense.
For a prospective Americas Best Value Inn franchisee, this accounting treatment means that the initial key money payment will not be fully recognized as an expense in the year it is paid. Instead, it will be spread out over the duration of the franchise agreement, which could impact the franchisee's profitability calculations and financial statements. It's important for franchisees to understand how this amortization affects their financial reporting and tax obligations.