How does Aplus handle the amortization of leasehold improvements, specifically regarding the term used for calculation?
Aplus Franchise · 2024 FDDAnswer from 2024 FDD Document
ment of both parties to the lease. At lease inception, all renewal options reasonably certain to be exercised are considered when determining the lease term. At this time, the Partnership does not have leases that include options to purchase or automatic transfer of ownership of the leased property to the Partnership. The depreciable life of leased assets and leasehold improvements are limited by the expected lease term.
To determine the present value of future minimum lease payments, we use the implicit rate when readily determinable.
Source: Item 22 — CONTRACTS (FDD page 68)
What This Means (2024 FDD)
According to Aplus's 2024 Franchise Disclosure Document, the depreciable life of leasehold improvements is limited by the expected lease term. This means that Aplus amortizes these improvements over the period the franchisee is expected to control the property under the lease agreement.
For franchisees, this implies that the amortization period will directly correlate with the length of their lease. The FDD states that most leases include renewal options that can extend the lease term from one to 20 years or greater. Aplus considers renewal options reasonably certain to be exercised when determining the lease term at the beginning of the lease. This can affect the amortization schedule if a renewal option is deemed likely to be exercised.
This approach is fairly standard in accounting for leasehold improvements. By tying the amortization to the lease term, Aplus ensures that the expense is recognized over the period the asset provides benefit. Franchisees should carefully review their lease terms and renewal options to understand the potential impact on their financial statements.