What was Benihana's rationale for changing the estimated useful life of the Kona Grill trade name?
Benihana Franchise · 2024 FDDAnswer from 2024 FDD Document
million for 2022 and 2021, respectively, composed primarily of sanitation, supplies and safety precautions taken to prevent the spread of COVID-19.
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"). All intercompany accounts and transactions have been eliminated in consolidation.
Change in Accounting Estimate
Effective April 1, 2022, the Company changed its estimated useful life of the Kona Grill trade name. Based upon the strong performance of the Kona Grill restaurants over the twelve months ended March 31, 2022, significant capital investments in both existing and new restaurants and the Company's commitment to expand the Kona Grill brand with the opening of new restaurants, the Company has determined that the Kona Grill t
Source: Item 22 — CONTRACTS (FDD pages 73–74)
What This Means (2024 FDD)
According to Benihana's 2024 Franchise Disclosure Document, the company changed its accounting estimate for the Kona Grill trade name effective April 1, 2022. Previously, the trade name had an estimated useful life of twenty years. However, Benihana determined that the Kona Grill trade name should be considered to have an indefinite life.
Benihana based this decision on the strong performance of Kona Grill restaurants over the twelve months ending March 31, 2022, along with significant capital investments in both existing and new restaurants. Benihana also cited its commitment to expanding the Kona Grill brand by opening new restaurants as a factor in this decision. As of December 31, 2022, Benihana had two Kona Grill venues under construction in Riverton, Utah, and Columbus, Ohio, and planned to open three to five Kona Grills each year for the foreseeable future.
The change in accounting estimate impacts Benihana's financial statements. It will reduce depreciation and amortization expense by $0.9 million annually and increase net income by $0.9 million annually. Additionally, it will increase basic and diluted earnings per share by approximately $0.03 annually, based on the current number of shares outstanding. This change reflects Benihana's confidence in the long-term value and growth potential of the Kona Grill brand.