Under what conditions does Bhc capitalize advertising costs instead of expensing them as they are incurred?
Bhc Franchise · 2025 FDDAnswer from 2025 FDD Document
reements for its two retail stores in October 2022 and in June 2023. Both of these lease agreements are operating leases and accordingly accounted for and presented as operating lease right-of- use assets and liabilities on the face of the financial statements. As of December 31, 2024, minimum rental commitment
Source: Item 23 — Receipts (FDD pages 52–230)
What This Means (2025 FDD)
According to Bhc's 2025 Franchise Disclosure Document, the company generally expenses advertising costs as they are incurred. However, Bhc will capitalize advertising costs if the advertising can be justifiably capitalized. Any advertising costs that are capitalized will be subject to impairment review and expenses rationally.
For prospective franchisees, this means that Bhc has the discretion to decide when to capitalize advertising costs instead of expensing them immediately. The FDD does not provide specific examples or criteria for when advertising costs can be "justifiably capitalized." This accounting treatment can affect Bhc's reported financial performance, as capitalizing costs spreads the expense over a longer period, potentially impacting profitability in the short term.
It is important for potential franchisees to understand Bhc's accounting practices, as they can influence the financial statements presented in the FDD. Franchisees may want to inquire about the specific circumstances under which Bhc capitalizes advertising costs and how this accounting treatment could affect the financial performance of the franchise system. Understanding these practices can help franchisees make informed decisions about their investment.