As of December 31, 2022, what was the reported value of Benihana's food inventories?
Benihana Franchise · 2024 FDDAnswer from 2024 FDD Document
accounts by considering a number of factors, including the length of time trade accounts receivable are past due, previous loss and payment history, the customer's current ability to pay its obligation to the Company and the condition of the general economy and industry as a whole. The Company has not reserved any trade receivables as of December 31, 2021 and 2020.
Inventory
Inventories, which consist of food, liquor and other beverages, are stated at the lower of cost or net realizable value. Cost is determined by the first in, first out method. Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs to sell.
Property and Equipment
Additions to property and equipment, including leasehold improvements, are recorded at cost while costs incurred to repair and maintain the Company's operations and equipment are expensed as incurred. Depreciation is calculated using the straight-line method over the estimated useful life of the asset.
Source: Item 22 — CONTRACTS (FDD pages 73–74)
What This Means (2024 FDD)
According to Benihana's 2024 Franchise Disclosure Document, as of December 31, 2022, the value of food inventories was $3.7 million and beverage inventories were $2.0 million. These inventories are stated at the lower of cost or net realizable value. The cost is determined using the first in, first out (FIFO) method, which assumes that the first units purchased are the first ones sold. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs to sell.
For a prospective Benihana franchisee, understanding how inventory is valued is crucial for managing their restaurant's finances. The FIFO method can impact the reported cost of goods sold and, consequently, the restaurant's profitability. If food costs are rising, using FIFO can result in a lower cost of goods sold and higher reported profits, at least initially.
It's also important to note that inventories are reported at the lower of cost or net realizable value. This means that if the market value of the food or beverages declines below their original cost, Benihana will write down the inventory to reflect the lower value. This could happen due to spoilage, obsolescence, or changes in market demand. Therefore, franchisees need to manage their inventory carefully to minimize the risk of write-downs and potential losses. The total inventory value reported on December 31, 2022 was $5.728 million.