How does Bath Tune Up compute depreciation for fixtures and equipment?
Bath_Tune_Up Franchise · 2025 FDDAnswer from 2025 FDD Document
Property and equipment are recorded at cost less accumulated depreciation and amortization. Depreciation of fixtures and equipment and computer equipment is computed using the straight-line method over their estimated useful lives. Certain costs incurred in connection with developing or obtaining internal-use software are recorded at cost and are included in property and equipment on the accompanying balance sheet. Depreciation begins once the software is available for its intended use over its estimated useful life, generally 3 to 5 years. Depreciation of leasehold improvements is computed using the straight-line method over the shorter of their estimated useful lives or the remaining term under the lease. Expenditures that materially increase the asset life are capitalized, while ordinary maintenance and repairs are charged to operations as incurred.
Depreciation and amortization is based on the estimated useful life and is calculated as follows:
Computer Software: 3-5 years Fixture and Equipment: 3-5 years Computer Equipment: 3-5 years Leasehold Improvements: 7 years
Source: Item 21 — FINANCIAL STATEMENTS (FDD pages 51–52)
What This Means (2025 FDD)
According to Bath Tune Up's 2025 Franchise Disclosure Document, depreciation of fixtures and equipment is calculated using the straight-line method over an estimated useful life of 3 to 5 years. This means that the cost of the asset is evenly distributed over its useful life, providing a consistent depreciation expense each year.
For a Bath Tune Up franchisee, understanding depreciation methods is important for financial planning and tax purposes. The straight-line method simplifies the calculation and provides a predictable expense, which can aid in budgeting and forecasting. The 3 to 5 year useful life for fixtures and equipment suggests that these assets will be fully depreciated within that timeframe, impacting the franchisee's taxable income and asset valuation.
It's also important to note that Bath Tune Up capitalizes expenditures that materially increase the asset's life, while ordinary maintenance and repairs are expensed as incurred. This distinction affects how costs are recorded and depreciated, with capital improvements being depreciated over their extended useful life, and routine maintenance being treated as an immediate expense. This policy is fairly standard in accounting practices.
Furthermore, the FDD states that depreciation expense related to property and equipment is included in Operating and administrative expenses on the Statements of Operations. This means that the depreciation expense will impact the franchisee's profitability as reflected in their income statement. Reviewing the financial statements and understanding these accounting practices is crucial for a franchisee to accurately assess their business's financial performance.