How does Auntie Annes account for expenditures related to assets held for lease, specifically distinguishing between those that extend useful life and those for normal maintenance and repairs?
Auntie_Annes Franchise · 2024 FDDAnswer from 2024 FDD Document
Assets held for lease is largely comprised of satellite SBRs that the Company leases to franchisees under monthto-month operating lease agreements and are recorded at cost, less accumulated depreciation. Expenditures that extend the useful lives of the related assets are capitalized. Expenditures for normal maintenance and repairs are expensed as incurred. Depreciation is computed on a straight-line basis over estimated useful lives of between 2- 7 years.
The Company records impairment losses on Long-lived assets when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. Assets determined to be impaired are written down to their estimated fair values using a discounted cash flow model including estimates of salvage values. For the fiscal years ended December 31, 2023 and December 25, 2022, the Company recognized impairment losses on Long-lived assets of $3,274 and $423, respectively, within Other operating expense, net. The impairment for the fiscal year ended December 31, 2023 primarily related to undeployed software and robotic food kiosks.
Source: Item 23 — RECEIPTS (FDD pages 106–366)
What This Means (2024 FDD)
According to Auntie Annes's 2024 Franchise Disclosure Document, assets held for lease primarily consist of satellite Small Business Restaurants (SBRs) that Auntie Annes leases to franchisees under month-to-month operating lease agreements. These assets are recorded at cost, less accumulated depreciation.
Expenditures that extend the useful lives of these leased assets are capitalized, meaning they are added to the asset's value on the balance sheet and depreciated over time. In contrast, expenditures for normal maintenance and repairs are expensed as incurred, meaning they are deducted from revenue in the period they occur. This distinction is crucial for accurately reflecting the financial performance and asset values of Auntie Annes.
Depreciation for these assets is computed using the straight-line method over an estimated useful life of between 2 to 7 years. This method evenly distributes the cost of the asset over its useful life, providing a consistent and predictable expense each year. For the fiscal years ended December 31, 2023 and December 25, 2022, the company recognized impairment losses on Long-lived assets of $3,274 and $423, respectively, within Other operating expense, net. The impairment for the fiscal year ended December 31, 2023 primarily related to undeployed software and robotic food kiosks.